Third Quarter 2012 Standard Setter Update Financial reporting and accounting developments (current through 30 September 2012)

October 2012

Third Quarter 2012 Standard Setter Update Financial reporting and accounting developments

This Third Quarter 2012 Standard Setter Update highlights significant developments in financial

accounting and reporting between 1 July 2012 and 30 September 2012. This publication also includes

summaries of certain proposals presently under consideration by the Financial Accounting Standards

Board (FASB), the Emerging Issues Task Force (EITF), the Securities and Exchange Commission (SEC),

the Public Company Accounting Oversight Board (PCAOB), the Auditing Standards Board (ASB) and the

Governmental Accounting Standards Board (GASB). We also refer to related Ernst & Young publications,

many of which can be found on our AccountingLink website. We will continue to keep you informed about

important developments as they occur.

October 2012

To our clients and other friends

Contents

Financial Accounting Standards Board (FASB) ........................................................ 1

Emerging Issues Task Force (EITF) ....................................................................... 12

Securities and Exchange Commission (SEC) .......................................................... 17

Public Company Accounting Oversight Board (PCAOB) ......................................... 31

Auditing Standards Board (ASB) ........................................................................... 38

Governmental Accounting Standards Board (GASB) ........................................................ 43

Effective date matrices ......................................................................................... 46

i

Financial Accounting Standards Board (FASB)

Final FASB guidance

ASU 2012-02, Intangibles — Goodwill and Other (Topic 350), Testing Indefinite-Lived Intangible Assets for Impairment ......................................................................................... 1

ASU 2012-01, Health Care Entities (Topic 954), Continuing Care Retirement Communities — Refundable Advance Fees ................................................................................................... 1

FASB exposure documents

Proposed ASU, Comprehensive Income (Topic 220), Presentation of Items Reclassified Out of Accumulated Other Comprehensive Income .............................................................. 2

Proposed ASU, Presentation of Financial Statements (Topic 205), The Liquidation Basis of Accounting ............................................................................................................ 2

Proposed ASU, Financial Instruments (Topic 825), Disclosures about Liquidity Risk and Interest Rate Risk ............................................................................................................... 3

Proposed ASU (Revised), Revenue Recognition (Topic 605), Revenue from Contracts with Customers .................................................................................................................. 3

Proposed ASU, Consolidation (Topic 810), Principal versus Agent Analysis ................................. 4

Proposed ASU, Real Estate — Investment Property Entities (Topic 973) ...................................... 5

Proposed ASU, Financial Services — Investment Companies (Topic 946), Amendments to the Scope, Measurement, and Disclosure Requirements ................................................... 5

Proposed ASU, Technical Corrections ........................................................................................ 6

Joint financial instruments project ............................................................................................ 6

Proposed ASU, Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities — Financial Instruments (Topic 825) and Derivatives and Hedging (Topic 815) .................................................... 6

Supplementary Document, Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities — Impairment ................... 7

Discussion Paper — Invitation to Comment, Selected Issues about Hedge Accounting ............ 7

Discussion Paper, Preliminary Views on Insurance Contracts ...................................................... 8

Proposed ASU, Leases (Topic 840) ............................................................................................ 9

Proposed ASU, Contingencies (Topic 450), Disclosure of Certain Loss Contingencies .................. 9

Other FASB

FASB/IASB joint projects ......................................................................................................... 10

FAF appoints PCC members .................................................................................................... 10

Invitation to comment on a private company decision-making framework ................................. 10

Invitation to comment on the FASB‘s disclosure framework project .......................................... 11

Pronouncements and proposals Pronouncements and proposals

ii Third Quarter 2012 Standard Setter Update Financial reporting and accounting developments

Emerging Issues Task Force (EITF)

Final EITF consensuses

ASU 2012-07, Entertainment — Films (Topic 926), Accounting for Fair Value Information That Arises after the Measurement Date and Its Inclusion in the Impairment Analysis of Unamortized Film Costs .................................................................................................... 12

ASU 2012-06, Business Combinations (Topic 805), Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution .................................................................... 12

ASU 2012-05, Statement of Cash Flows (Topic 230), Not-for-Profit Entities: Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows ................... 13

EITF consensuses-for-exposure

Proposed ASU, Consolidation (Topic 810), Accounting for the Difference between the Fair Value of the Assets and the Fair Value of the Liabilities of a Consolidated Collateralized Financing Entity ................................................................................................................ 14

Proposed ASU, Foreign Currency Matters (Topic 830), Parent‘s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity ................. 14

Proposed ASU, Not-for-Profit Entities (Topic 958), Personnel Services Received from an Affiliate for Which the Affiliate Does Not Seek Compensation ............................................ 15

Proposed ASU, Liabilities (Topic 405), Obligations Resulting from Joint and Several Liability Arrangements ...................................................................................................... 16

Securities and Exchange Commission (SEC)

Final SEC rules

Conflict Minerals (Release No. 34-67716) ................................................................................ 17

Disclosure of Payments by Resource Extraction Issuers (Release No. 34-67717) ...................... 17

SEC rule proposals and other releases

Eliminating the Prohibition Against General Solicitation and General Advertising in Rule 506 and Rule 144A Offerings (Release No. 33-9354) ............................................................... 18

Commission Guidance Regarding Definitions of Mortgage Related Security and Small Business Related Security (Release No. 34-67448) ............................................................ 18

‖Roadmap‖ on Phase in of Derivatives Regulation (Release No. 34-67177) ............................... 19

Prohibition and Restrictions on Proprietary Trading and Certain Interests in, and Relationships with, Hedge Funds and Private Equity Funds (Release No. 34-65545) ............ 19

Prohibition against Conflicts of Interest in Certain Securitizations (Release No. 34-65355) ........ 20

Re-proposal of Shelf Eligibility Conditions for Asset-Backed Securities and Other Additional Requests for Comment (Release No. 33-9244) .................................................................. 20

Broker-Dealer Reports (Release No. 34-64676) ....................................................................... 21

iii

Proposed Rules for Nationally Recognized Statistical Rating Organizations (Release No. 34-64514) ................................................................................................... 22

Removal of Certain References to Credit Ratings Under the Securities Exchange Act of 1934 (Release No. 34-64352) .......................................................................................... 22

Credit Risk Retention (Release No. 34-64148) ......................................................................... 23

Incentive-Based Compensation Arrangements (Release No. 34-64140) .................................... 24

References to Credit Ratings in Certain Investment Company Act Rules and Forms (Release No. 33-9193) ..................................................................................................... 24

End-User Exception to Mandatory Clearing of Security-Based Swaps (Release No. 34-63556) ................................................................................................... 25

Reporting of Proxy Votes on Executive Compensation and Other Matters (Release No. 34-63123) ................................................................................................... 25

Short-Term Borrowings Disclosure (Release No. 33-9143) ....................................................... 26

Asset-Backed Securities (Release No. 33-9117) ....................................................................... 26

Other SEC

Final Report on IFRS Work Plan ............................................................................................... 27

SEC staff issues more guidance on implementing the JOBS Act ................................................ 28

EDGAR accepting confidential draft registration statements as of 1 October 2012 .................... 28

SEC Advisory Committee on Small and Emerging Companies meets ......................................... 29

2013 US GAAP XBRL Taxonomy available for comment by 29 October 2012 ........................... 29

SEC invites comments on XBRL submissions ............................................................................ 29

New Iran sanctions law requires disclosures in periodic reports................................................. 30

Study on municipal securities market ....................................................................................... 30

Public Company Accounting Oversight Board (PCAOB)

PCAOB proposed standards and other projects

PCAOB Release No. 2012-004, Auditing Standard No. 16, Communications with Audit Committees ............................................................................................................. 31

PCAOB Release No. 2012-002, Proposed Amendments to Conform the Board‘s Rules and Forms to the Dodd-Frank Act ...................................................................................... 32

PCAOB Release No. 2012-001, Proposed Auditing Standard, Related Parties ........................... 32

PCAOB Release No. 2011-007, Proposed Auditing Standard, Improving the Transparency of Audits ..................................................................................................... 33

PCAOB Release No. 2011-006, Concept Release on Auditor Independence and Audit Firm Rotation .......................................................................................................... 33

PCAOB Release No. 2011-005, Proposed Auditing Standard, Auditing Supplemental Information Accompanying Audited Financial Statements .................................................. 34

PCAOB Release No. 2011-004, Proposed Standards for Attestation Engagements Related to Broker and Dealer Compliance or Exemption Reports Required by the U.S. Securities and Exchange Commission ................................................................................................ 34

iv Third Quarter 2012 Standard Setter Update Financial reporting and accounting developments

PCAOB Release No. 2011-003, Concept Release on Possible Revisions to PCAOB Standards Related to Reports on Audited Financial Statements .......................................................... 35

PCAOB Release No. 2010-005, Application of the ―Failure to Supervise‖ Provision of the Sarbanes-Oxley Act of 2002 and Solicitation of Comment on Rulemaking Concepts ............... 36

PCAOB Release No. 2010-003, Proposed Auditing Standard Related to Confirmation ............... 36

Other PCAOB

PCAOB Release No. 2012-005, Report on the Progress of the Interim Inspection Program Related to Audits of Brokers and Dealers ........................................................................... 37

PCAOB Release No. 2012-003, Information for Audit Committees About the PCAOB Inspection Process ............................................................................................................ 37

Auditing Standards Board (ASB)

ASB final standards

Statement on Auditing Standards No. 126, The Auditor‘s Consideration of an Entity‘s Ability to Continue as a Going Concern (Redrafted)....................................................................... 38

ASB exposure drafts

Proposed Statement on Auditing Standards, Omnibus Statement on Auditing Standards — 2012 ............................................................................................................. 39

AICPA other

Proposed Statements on Standards for Accounting and Review Services: Association With Unaudited Financial Statements; Compilation of Financial Statements; and Compilation of Financial Statements — Special Considerations ............................................................... 40

Governmental Accounting Standards Board (GASB)

Final GASB guidance

GASB Statement No. 68, Accounting and Financial Reporting for Pensions — an amendment of GASB Statement No. 27 ................................................................................................ 43

GASB Statement No. 67, Financial Reporting for Pension Plans — an amendment of GASB Statement No. 25 ............................................................................................................. 43

GASB exposure drafts

Accounting and Financial Reporting for Nonexchange Financial Guarantee Transactions ........... 44

Government Combinations and Disposals of Government Operations ........................................ 44

Other GASB

Preliminary Views, Economic Condition Reporting: Financial Projections ................................... 45

Preliminary Views, Recognition of Elements of Financial Statements and Measurement Approaches................................................................................................. 45

v

Effective date matrices Effective date matrix — final FASB pronouncements ................................................................. 46

Effective date matrix — final SEC pronouncements and interpretive releases ............................. 50

Effective date matrix — final PCAOB pronouncements and rules ................................................ 51

Effective date matrix — final ASB standards .............................................................................. 52

Effective date matrix — final GASB pronouncements ................................................................. 53

1

ASU 2012-02, Intangibles — Goodwill and Other (Topic 350), Testing Indefinite-Lived Intangible Assets for Impairment

Date issued: 27 July 2012

Summary

The ASU adds an optional qualitative assessment for determining whether an indefinite-lived

intangible asset is impaired, similar to the goodwill guidance issued in ASU 2011-08. Companies have

the option to first perform a qualitative assessment to determine whether it is more likely than not (a

likelihood of more than 50%) that an indefinite-lived intangible asset is impaired. If a company

determines that it is more likely than not that the fair value of such an asset exceeds its carrying

amount, it would not need to calculate the fair value of the asset in that year. However, if a company

concludes otherwise, it must calculate the fair value of the asset, compare that value with its carrying

amount and record an impairment charge, if any.

Effective date

The guidance is effective for annual and interim impairment tests performed for fiscal years beginning

after 15 September 2012. Early adoption is permitted.

Other resources

• Technical Line, How to qualitatively assess indefinite-lived intangibles for impairment

(SCORE No. BB2420)

• To the Point, Qualitative impairment test added for indefinite-lived intangibles

(SCORE No. BB2383)

ASU 2012-01, Health Care Entities (Topic 954), Continuing Care Retirement Communities — Refundable Advance Fees

Date issued: 24 July 2012

Summary

The ASU clarifies that a continuing care retirement community (CCRC) should classify a refundable

advance fee as deferred revenue only when its resident contract provides for repayment of the fee

upon reoccupancy and repayment is limited to the proceeds it receives from the new occupant.

Otherwise, the advance fee is classified as a liability.

The amendments will be applied retrospectively by recording a cumulative-effect adjustment to

opening retained earnings (or unrestricted net assets) as of the beginning of the earliest period

presented.

Effective date

For public entities (including conduit bond obligors), the amendments are effective for fiscal periods

beginning after 15 December 2012. For nonpublic entities, the amendments are effective for fiscal

periods beginning after 15 December 2013. Early adoption is permitted.

Financial Accounting Standards Board (FASB)

Final FASB guidance

2 Third Quarter 2012 Standard Setter Update Financial reporting and accounting developments

Proposed ASU, Comprehensive Income (Topic 220), Presentation of Items Reclassified Out of Accumulated Other Comprehensive Income

Date issued: 16 August 2012 — comment period ended 15 October 2012

Summary

The proposal would require companies to provide tabular disclosures about items that are required by

US GAAP to be reclassified out of accumulated other comprehensive income (AOCI) to net income in

their entirety. The table would include the amount of the reclassification and identify the line item

affected by the reclassification on the statement where net income is presented. For other AOCI

reclassification items, the table would list cross-references to other disclosures where additional

details about their effects are disclosed. The proposal also would increase disclosures about changes in

the balances of AOCI components and require new interim reporting disclosures.

Effective date

The effective date is to be determined.

Other resources

• FASB Project Update: Presentation of Comprehensive Income: Reclassifications Out of

Accumulated Other Comprehensive Income

• To the Point, FASB proposes more AOCI reclassification disclosures (SCORE No. BB2390)

• Comment Letter (SCORE No. BB2417)

Proposed ASU, Presentation of Financial Statements (Topic 205), The Liquidation Basis of Accounting

Date issued: 2 July 2012 — comment period ended 1 October 2012

Summary

The proposal would require entities to prepare financial statements on a liquidation basis when

liquidation is imminent. A limited-life entity would not prepare financials using the liquidation basis of

accounting if it carries out the liquidation plan that was specified in its governing documents.

Liquidation-basis financial statements would reflect relevant information about the value of an entity‘s

resources and obligations in liquidation.

This proposal resulted from feedback the FASB received on its 2008 exposure draft (ED), Going

Concern. In the second phase of this project, the FASB will decide whether management should be

required to assess whether there is doubt about an entity‘s ability to continue as a going concern.

Effective date

The effective date is to be determined.

FASB exposure documents

3

Other resources

• FASB Project Update: The Liquidation Basis of Accounting and Going Concern

• To the Point, Liquidation accounting would be required when liquidation is imminent

(SCORE No. BB2374)

• Comment Letter (SCORE No. BB2411)

Proposed ASU, Financial Instruments (Topic 825), Disclosures about Liquidity Risk and Interest Rate Risk

Date issued: 27 June 2012 — comment period ended 25 September 2012

Summary

The FASB proposed requiring all entities to significantly expand their disclosures about risks inherent

in financial instruments in their notes to their financial statements. All entities would be required to

provide quantitative and qualitative liquidity risk disclosures in their audited financial statements.

These disclosures are intended to provide financial statement users with information to help them

assess an entity‘s ability to meet its obligations. Entities that meet the proposed definition of a

financial institution, including reportable segments of nonfinancial institutions that qualify as such,

also would have to provide interest rate risk disclosures.

Tabular disclosures would be supplemented by narrative disclosures to help financial statement users

understand the entity‘s exposure to the particular risk depicted in the tables.

Effective date

The effective date is to be determined.

Other resources

• FASB Project Update: Accounting for Financial Instruments: Liquidity and Interest Rate Disclosures

• Technical Line, Liquidity and interest rate risk — new disclosures proposed for all entities

(SCORE No. BB2370)

• Comment Letter (SCORE No. BB2410)

Proposed ASU (Revised), Revenue Recognition (Topic 605), Revenue from Contracts with Customers

Date issued: 14 November 2011 — comment period ended 13 March 2012

Summary

The FASB and the International Accounting Standards Board (IASB) (collectively, the Boards) issued a

revised joint proposal to create a single, global revenue recognition model. The Boards requested

feedback because they made significant changes to the model they proposed in 2010. The proposed

model, which retains the five steps in the initial proposal, would apply to most contracts with

customers. Leases, insurance contracts, financial instruments, guarantees and certain nonmonetary

4 Third Quarter 2012 Standard Setter Update Financial reporting and accounting developments

transactions are excluded from the scope of the proposal. Revenue would be recognized in a manner

that depicts the transfer of goods or services to customers in an amount that reflects the

consideration to which an entity expects to be entitled, subject to certain limitations.

The FASB separately issued proposed amendments to the FASB‘s Accounting Standards Codification

to reflect revisions required by this proposal.

The Boards began redeliberations in the third quarter of 2012.

Effective date

While the Boards have not yet decided on an effective date, the ED indicates that the standard would

not be effective earlier than 1 January 2015.

Other resources

• FASB Project Update: Revenue Recognition — Joint Project of the FASB and IASB

• To the Point, Boards to reconsider key issues in revenue recognition project (SCORE No. BB2342)

• To the Point, Media and entertainment entities raise key issues in revenue recognition project

(SCORE No. BB2344)

• To the Point, Technology entities raise key issues in revenue recognition project

(SCORE No. BB2343)

• To the Point, More work needed on revenue recognition (SCORE No. BB2314)

• To the Point, Surprises lurk in the proposed revenue recognition model (SCORE No. BB2245)

• Technical Line, Double-exposure: The revised revenue recognition proposal (SCORE No. BB2231)1

• To the Point, A new proposal for revenue recognition (SCORE No. BB2210)

• Comment Letter (SCORE No. BB2311)

Proposed ASU, Consolidation (Topic 810), Principal versus Agent Analysis

Date issued: 3 November 2011 — comment period ended 15 February 2012

Summary

The proposal would affect how all reporting entities evaluate whether they should consolidate another

entity. For variable interest entities (VIEs) and voting partnerships, a reporting entity‘s decision maker

would evaluate three qualitative factors to determine whether it is using its power as a principal or as an

agent. Principals would be required to consolidate. The proposal also would align the consideration of

removal and participating rights in the Voting Model with the Variable Interest Model. The proposal

could affect the determination of whether an entity is a VIE and whether a reporting entity is the

primary beneficiary of a VIE.

The FASB began redeliberations in the third quarter of 2012.

1 A number of industry supplements to this Technical Line are available.

5

Effective date

The effective date is to be determined.

Other resources

• FASB Project Update: Consolidation — Policy and Procedures

• Technical Line, Consolidation and investment company accounting could change

(SCORE No. BB2228)

• To the Point, Consolidation models may move closer together (SCORE No. BB2209)

• Comment Letter (SCORE No. BB2282)

Proposed ASU, Real Estate — Investment Property Entities (Topic 973)

Date issued: 21 October 2011 — comment period ended 15 February 2012

Summary

The FASB has tentatively decided not to develop the investment property entity (IPE) concept in the

ED. The Board plans to consider the results of related standard-setting projects (e.g., leases) before

deciding whether to pursue another approach to investment property accounting (e.g., an asset-based

approach) or to drop the project entirely.

Other resources

• FASB Project Update: Investment Property Entities

• To the Point, No IPEs, but fair value could still be an option (SCORE No. BB2387)

Proposed ASU, Financial Services — Investment Companies (Topic 946), Amendments to the Scope, Measurement, and Disclosure Requirements

Date issued: 21 October 2011 — comment period ended 15 February 2012

Summary

The proposal redefines an investment company and how it accounts for investments. In response to

feedback on its October 2011 proposal, the FASB has made significant changes to its proposal. As a

result, the revised definition of an investment company looks more like the current definition under US

GAAP than what the FASB originally proposed.

Effective date

The effective date is to be determined.

Other resources

• FASB Project Update: Investment Companies — Joint Project of the FASB and IASB

• To the Point, Redefining investment company accounting — again (SCORE No. BB2404)

• Technical Line, Consolidation and investment company accounting could change

(SCORE No. BB2228)

• Comment Letter (SCORE No. BB2284)

6 Third Quarter 2012 Standard Setter Update Financial reporting and accounting developments

Proposed ASU, Technical Corrections

Date issued: 14 October 2011 — comment period ended 13 December 2011

Summary

Technical corrections are proposed to a variety of topics in the Codification based on stakeholder

feedback. The changes include source literature amendments, guidance clarification, reference

corrections and relocated guidance. The proposal also includes amendments to conform the use of the

term ―fair value‖ in the Codification to the measurement and disclosure requirements of ASC 820.

Most of the amendments are not expected to have a significant effect on current practice, but certain

amendments could result in a change. The FASB decided to provide transition guidance for

amendments that it believes could change practice.

Effective date

In redeliberations, the Board decided that the amendments without transition guidance will be effective

upon issuance for both public and nonpublic entities. For public entities, the amendments with

transition guidance will be effective for fiscal periods beginning after 15 December 2012. For

nonpublic entities, the amendments with transition guidance will be effective for fiscal periods

beginning after 15 December 2013.

Note: ASU 2012-04, Technical Corrections and Improvements, was issued on 1 October 2012.

Other resources

• FASB Project Update: Technical Corrections and Improvements

• Comment Letter (SCORE No. BB2230)

Joint financial instruments project

The FASB and the IASB are working on a joint project on the accounting for financial instruments.

The FASB has issued three documents on this project, which are discussed together below, in order

of issuance.

Proposed ASU, Accounting for Financial Instruments and Revisions to the

Accounting for Derivative Instruments and Hedging Activities — Financial Instruments (Topic 825) and Derivatives and Hedging (Topic 815)

Date issued: 26 May 2010 — comment period ended 30 September 2010

Summary

Although this is described as a joint project with the IASB, the Boards have reached very different

conclusions. The FASB‘s 2010 proposal would have significantly changed the accounting for

financial instruments and required more of them to be measured at fair value. Hedge accounting

would be simplified, with less quantitative analysis required.

7

The FASB began redeliberations on its proposed classification and measurement model in December

2010. As a result of these redeliberations, the FASB has made a number of significant changes to

the proposed approach, which will require less measurement at fair value. The IASB is considering

limited changes to IFRS 9 resulting from the interaction of IFRS 9 with the insurance project and the

FASB‘s proposed classification and measurement model. To more closely align their respective

models and reduce key differences, the Boards are now jointly redeliberating selected aspects of

their guidance. As discussed below, the Boards are developing new approaches to credit

impairment, and the FASB asked for comments on the IASB hedging proposal.

Effective date

The proposal does not include a proposed effective date. The Boards solicited comments on the

effective date and transition method in separate documents released in October 2010.

Supplementary Document, Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities — Impairment

Date issued: 31 January 2011 — comment period ended 1 April 2011

Summary

The Boards jointly proposed a model for determining when credit losses should be recognized on

certain loans and other financial assets. The proposal would have represented a big change from

current practice under both US GAAP and IFRS, and differed significantly from what the FASB

proposed in 2010.

Subsequently, the Boards decided not to pursue this model, and jointly developed a new approach

to impairment that would have split financial assets into three buckets based on their underlying

credit risk characteristics and the unit of evaluation. During the FASB‘s outreach on this model,

constituents expressed significant concerns. The FASB is now developing an alternative approach it

calls the ―current expected credit loss model.‖

Effective date

The FASB and the IASB have not decided on effective dates.

Discussion Paper — Invitation to Comment, Selected Issues about Hedge Accounting

Date issued: 9 February 2011 — comment period ended 25 April 2011

Summary

The FASB sought comments on the IASB hedging proposal that would significantly change the

hedge accounting model in IFRS. The questions in the FASB‘s Discussion Paper (DP) suggest that

the FASB may be contemplating how to incorporate some of the IASB‘s ideas into its hedging

framework. The FASB proposed its own hedge accounting model in May 2010.

The FASB plans to begin redeliberations after its work on classification and measurement and

impairment.

8 Third Quarter 2012 Standard Setter Update Financial reporting and accounting developments

Other resources

• FASB Project Update: Accounting for Financial Instruments — Joint Project of the FASB and IASB

• To the Point, Classification and measurement — the GAAP continues to narrow

(SCORE No. BB2345)

• To the Point, Classification and measurement — narrowing the GAAP (SCORE No. BB2335)

• To the Point, Impairment of financial assets — a step closer to completion (SCORE No. BB2336)

• Technical Line, Financial instruments — a new classification and measurement model on the

horizon (SCORE No. BB2157)

• Technical Line, Hedge accounting: Is convergence possible? (SCORE No. BB2125)

• To the Point, Hedge accounting — FASB seeks reaction to IASB‘s proposed model

(SCORE No. BB2088)

• Comment Letter (SCORE No. BB2120)

• Comment Letter (SCORE No. BB2117)

• Comment Letter (SCORE No. BB1998)

Discussion Paper, Preliminary Views on Insurance Contracts

Date issued: 17 September 2010 — comment period ended 15 December 2010

Summary

The FASB issued a DP that summarizes key aspects of the IASB‘s July 2010 ED of improvements to

the accounting for insurance contracts and compares those proposals with alternative preliminary

views of the FASB. If the FASB‘s preliminary views are ultimately adopted, they would have a

significant effect on the measurement and reporting of insurance contracts.

Some of the significant changes would have been:

• Entity-based accounting guidance would be replaced by contract-based guidance.

• Several measurement models would be replaced with a single measurement model.

• Traditional line items in the income statement (e.g., premium revenue, claims expense) could

be eliminated.

The Boards have made a number of changes to the approaches in the FASB‘s DP and the IASB‘s ED.

The Boards continue to jointly redeliberate the significant issues but have acknowledged they will not

issue a single converged standard. The FASB will consider whether to make changes to US GAAP by

replacing all existing guidance or by making targeted amendments.

Effective date

The Boards solicited comments on the effective date and transition method in separate documents

released in October 2010.

9

Other resources

• FASB Project Update: Insurance Contracts — Joint Project of the IASB and FASB

• Insurance Accounting Alerts

• Insurance Accounting Alert, FASB provides preliminary views on insurance accounting

(SCORE No. BB2008)

• Comment Letter (SCORE No. BB2054)

Proposed ASU, Leases (Topic 840)

Date issued: 17 August 2010 — comment period ended 15 December 2010

Summary

The ED proposed a single model that would apply to most leases and would effectively end off–balance

sheet reporting for leases. The proposed model also would require entities to make a number of

estimates and periodically reassess those estimates in accounting for leases. As proposed, the

guidance would affect existing leases at transition, and no leases would be grandfathered. Both lessee

and lessor accounting are discussed in the ED.

In their joint redeliberations, the Boards tentatively have made a number of significant changes to the

proposal and plan to formally re-expose their joint leases proposal in early 2013.

Effective date

The proposal does not include an effective date. The Boards solicited comments on the effective date

and transition method in separate documents released in October 2010.

Other resources

• FASB Project Update: Leases — Joint Project of the FASB and the IASB

• Technical Line, Leases on the brink of re-exposure (SCORE No. BB2403)

• Comment Letter (SCORE No. BB2055)

Proposed ASU, Contingencies (Topic 450), Disclosure of Certain Loss Contingencies

Date issued: 20 July 2010 — comment period ended 20 September 2010

Summary

In 2008 and 2010, the FASB issued exposure drafts that would have required expanded quantitative

and qualitative disclosures about loss contingencies.

In July 2012, the FASB decided to remove the project from the Board‘s agenda.

Other resources

• FASB Project Update: Disclosure of Certain Loss Contingencies

• To the Point, FASB drops loss contingencies disclosure project (SCORE No. BB2376)

10 Third Quarter 2012 Standard Setter Update Financial reporting and accounting developments

FASB/IASB joint projects

Summary

The FASB and the IASB continue to work on their joint projects. The Boards completed several

projects in 2011 (e.g., balance sheet offsetting, fair value measurement, other comprehensive

income, IASB consolidation guidance) and are focusing on their major projects on financial

instruments, revenue recognition and leases (see proposed ASUs above). In addition, the Boards are

jointly redeliberating the insurance contracts project (see discussion above). While consolidation

accounting was once a joint project, the FASB proposed only limited changes to its consolidation

guidance (see above). Accordingly, certain differences between US GAAP and IFRS (e.g., concept of

―de facto control,‖ consideration of potential voting rights) will not be eliminated. The FASB currently

is redeliberating its proposal. Also, the Boards have been jointly redeliberating guidance relating to

consolidation accounting for investment companies (see above).

Certain projects, such as the broad financial statement presentation project, financial instruments with

characteristics of equity and emissions trading schemes, have been reassessed as lower priorities, and

further action is not expected in the near term.

Other resources

• Joint Project Watch, FASB/IASB joint projects from a US GAAP perspective — September 2012

(SCORE No.BB2415)

FAF appoints PCC members

Summary

The Financial Accounting Foundation (FAF) appointed the members of the new Private Company

Council (PCC) and announced that Daryl E. Buck will be the FASB member liaison to the PCC. Billy M.

Atkinson was named as chair of the PCC.

The PCC was created to determine whether and when to make exceptions to US GAAP for private

companies. Its decisions will require endorsement by the FASB. The PCC also will advise the FASB on

private company treatment for current standard-setting projects.

Other resources

• To the Point, Private companies in the spotlight (SCORE No. BB2409)

Invitation to comment on a private company decision-making framework

Date issued: 31 July 2012 — comment period ends 31 October 2012

Summary

The FASB issued an invitation to comment on its staff‘s initial recommendations for a private company

decision-making framework. The FASB is seeking input about whether the draft framework is

appropriate, complete and cost-effective.

Other FASB

11

If adopted, the decision-making framework would be used by the FASB and the PCC to determine

whether and when exceptions or modifications to US GAAP are appropriate for private company financial

reporting. The framework‘s objective is to identify and address how the needs of users of private

company financial statements differ from those of public companies, and to find opportunities to reduce

the cost and complexity of providing information to those users. The framework is not intended to lead

to a fundamentally different basis for preparing financial statements for private companies.

Other resources

• FASB Project Update: Private Company Decision-Making Framework

• To the Point, Private companies: a framework for consideration (SCORE No. BB2386)

Invitation to comment on the FASB’s disclosure framework project

Date issued: 12 July 2012 — comment period ends 16 November 2012

Summary

The FASB is seeking comment on a discussion paper on a framework for improving the effectiveness

of disclosures in the notes to the financial statements by clearly communicating the information that is

most important to the users of a company‘s financial statements. The framework is intended to

promote consistent decisions about disclosure requirements by the FASB and to provide a judgment

framework for each company to use in determining which disclosures are relevant to users of its

financial statements.

Other resources

• FASB Project Update: Disclosure Framework

• To the Point, Now is the time to address disclosure overload (SCORE No. BB2367)

12 Third Quarter 2012 Standard Setter Update Financial reporting and accounting developments

ASU 2012-07, Entertainment — Films (Topic 926), Accounting for Fair Value Information That Arises after the Measurement Date and Its Inclusion in the Impairment Analysis of Unamortized Film Costs

Date issued: 24 October 2012 (Consensus reached by the Task Force and ratified by the Board in

September 2012)

Summary

The guidance in ASC 926-20, Entertainment — Films, Other Assets — Film Costs, for the impairment test

for unamortized film costs establishes a rebuttable presumption that circumstances indicating a

possible need for a write-down of these costs arising after the balance sheet date but before the

financial statements are issued, existed at the balance sheet date. However, ASC 820-10, Fair Value

Measurement, requires fair value measurements to be made as of the measurement date. The Task

Force decided to remove the rebuttable presumption so that only information that is known or

knowable by market participants as of the measurement date would be incorporated into the fair value

measurement used in that impairment analysis of unamortized film costs.

Effective date

The final consensus will be effective for SEC filers for impairment tests performed on or after 15

December 2012. For other entities, the consensus will be effective for impairment tests performed on

or after 15 December 2013. Early adoption is permitted.

Other resources

• EITF Update, September 2012 meeting highlights (SCORE No. BB2406)

• EITF Update, March 2012 meeting highlights (SCORE No. BB2315)

ASU 2012-06, Business Combinations (Topic 805), Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution

Date issued: 23 October 2012 (Consensus reached by the Task Force and ratified by the Board in

September 2012)

Summary

The Task Force concluded that when an entity recognizes an indemnification asset as a result of a

government-assisted acquisition of a financial institution involving an indemnification agreement, and

subsequently a change in the cash flows expected to be collected on the indemnification asset occurs,

the change in measurement of the indemnification asset would be accounted for on the same basis as

the change in the indemnified item. Any amortization period for the changes in value would be limited to

the lesser of the term of the indemnification agreement and the remaining life of the indemnified assets.

Emerging Issues Task Force (EITF)

Final EITF consensuses

13

Effective date

The final consensus will be effective for fiscal years beginning on or after 15 December 2012 and

interim periods within those fiscal years. The final consensus will be applied prospectively to any new

indemnification assets acquired after the date of adoption and to indemnification assets existing as of

the date of adoption. Early adoption is permitted.

Other resources

• EITF Update, September 2012 meeting highlights (SCORE No. BB2406)

• EITF Update, March 2012 meeting highlights (SCORE No. BB2315)

ASU 2012-05, Statement of Cash Flows (Topic 230), Not-for-Profit Entities: Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows

Date issued: 22 October 2012 (Consensus reached by the Task Force and ratified by the Board in

September 2012)

Summary

The Task Force decided that a not-for-profit entity‘s (NFP) cash receipts from the sale of donated

financial assets that upon receipt were directed without any NFP-imposed limitations for sale and were

converted nearly immediately into cash should be presented as operating activities in the statement of

cash flows. However, if the donor restricted the contribution to be used for the acquisition, construction

or improvement of long-lived assets, or to establish or to increase a permanent or term endowment, the

sale proceeds should be presented as a financing cash flow.

Effective date

The final consensus will be effective prospectively to cash receipts on or after the date of adoption

from the sale of donated financial assets for fiscal years beginning after 15 June 2013 and interim

periods within those years. Retrospective application would be permitted. Early adoption from the

beginning of the fiscal year of adoption generally is permitted.

Other resources

• EITF Update, September 2012 meeting highlights (SCORE No. BB2406)

• EITF Update, March 2012 meeting highlights (SCORE No. BB2315)

14 Third Quarter 2012 Standard Setter Update Financial reporting and accounting developments

Proposed ASU, Consolidation (Topic 810), Accounting for the Difference between the Fair Value of the Assets and the Fair Value of the Liabilities of a Consolidated Collateralized Financing Entity

Date issued: 11 October 2012 (Consensus-for-exposure reached by the Task Force and ratified by the

Board in September 2012) — comment period ends 10 December 2012

Summary

An entity that consolidates a collateralized financing entity (CFE) and measures the CFE‘s financial

assets and liabilities at fair value would be required to measure the difference between the fair value

of the assets and liabilities consistently with the ―financial assets and financial liabilities with offsetting

positions in market risks or counterparty credit risk‖ guidance in ASC 820-10, Fair Value

Measurement. That guidance would require the difference to be measured consistently with how

market participants would price the entity‘s net risk exposure at the measurement date.

Effective date

The consensus-for-exposure would be applied on a modified retrospective basis, with an option to apply

a retrospective approach. Early adoption would be permitted. The effective date is to be determined.

Other resources

• EITF Update, September 2012 meeting highlights (SCORE No. BB2406)

Proposed ASU, Foreign Currency Matters (Topic 830), Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity

Date issued: 11 October 2012 (Consensus-for-exposure reached by the Task Force and ratified by the

Board in September 2012) — comment period ends 10 December 2012

Summary

The proposal addresses the question of whether ASC 810-10, Consolidation — Overall, or ASC 830-30,

Foreign Currency Matters — Translation of Financial Statements, applies to the release of the cumulative

translation adjustment (CTA) into earnings when a parent no longer holds a controlling financial interest

in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in

substance real estate or conveyance of oil and gas mineral rights) within a consolidated foreign entity.

The consensus-for-exposure concludes that if the transaction involves an investment in a foreign

entity, the guidance in ASC 810-10 applies, but if the transaction is related to an investment within a

foreign entity, the guidance in ASC 830-30 applies.

Effective date

The effective date is to be determined. The Task Force tentatively concluded that amendments in the

consensus-for-exposure would be applied on a prospective basis. Early adoption would be permitted.

EITF consensuses-for-exposure

15

Other resources

• EITF Update, September 2012 meeting highlights (SCORE No. BB2406)

• EITF Update, June 2012 meeting highlights (SCORE No. BB2368)

• EITF Update, March 2012 meeting highlights (SCORE No. BB2315)

• EITF Update, November 2011 meeting highlights (SCORE No. BB2207)

Proposed ASU, Not-for-Profit Entities (Topic 958), Personnel Services Received from an Affiliate for Which the Affiliate Does Not Seek Compensation

Date issued: 23 July 2012 — comment period ended 20 September 2012

Summary

The proposed amendments would require a recipient not-for-profit to recognize all personnel services

received from an affiliate that directly benefit the recipient not-for-profit entity, measured at the cost

recognized by the affiliate for the personnel providing those services. This would include both personnel

services performed for and under the direction of the recipient not-for-profit, as well as shared services.

The consensus-for-exposure only applies to personnel services received from an affiliate when the

affiliate does not ask for compensation from the recipient not-for-profit entity. An affiliate is defined as

a party that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is

under common control with an entity.

The Task Force also concluded that a not-for-profit entity that presents a performance indicator (such

as a not-for-profit, business-oriented health care entity) would report the increase in net assets

associated with these personnel services as an equity transfer, regardless of whether those services are

received from a not-for-profit or for-profit affiliate.

Effective date

The consensus-for-exposure would be applied prospectively, with modified retrospective application

permitted. Early adoption also would be permitted. The effective date is to be determined.

Other resources

• EITF Update, June 2012 meeting highlights (SCORE No. BB2368)

16 Third Quarter 2012 Standard Setter Update Financial reporting and accounting developments

Proposed ASU, Liabilities (Topic 405), Obligations Resulting from Joint and Several Liability Arrangements

Date issued: 23 July 2012 — comment period ended 20 September 2012

Summary

The EITF concluded that a reporting entity would recognize obligations resulting from joint and several

liability arrangements for which the total amount is fixed at the reporting date, and measure them using

the guidance in ASC 450-20, Contingencies — Loss Contingencies, unless other specific guidance exists

or the entity‘s primary role is that of a guarantor. Recurring disclosures for each obligation resulting

from the joint and several liability arrangements also would be required.

Effective date

The consensus-for-exposure would be applied retrospectively to all prior periods presented for

obligations that exist at the beginning of an entity‘s fiscal year of adoption. Entities making a change

to their accounting may elect to use hindsight for the comparative periods and would disclose that

fact. Early adoption would be permitted. The effective date is to be determined.

Other resources

• EITF Update, June 2012 meeting highlights (SCORE No. BB2368)

17

Conflict Minerals (Release No. 34-67716)

Date issued: 22 August 2012

Summary

The SEC issued a final rule requiring issuers to disclose the use of conflict minerals in their products and

whether any of those minerals originated in the Democratic Republic of the Congo or neighboring

countries (i.e., covered countries). The rule requires an issuer to determine whether conflict minerals are

necessary to products it manufactures or contracts to be manufactured. If so, the issuer must make a

―reasonable country of origin inquiry‖ into whether its conflict minerals come from covered countries.

The issuer must perform due diligence procedures to determine whether any conflict minerals obtained

from covered countries are ―conflict free‖ and file a Conflict Minerals Report as an exhibit to the new

specialized disclosure report (Form SD), filed annually with the SEC .

The rule, mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act),

responds to humanitarian concerns that trade in conflict minerals is financing armed groups in the region.

Effective date

Issuers are required to file Form SD for calendar years, with initial reports to be filed by 31 May 2014

covering calendar-year 2013. During a transition period of two years, or four years for smaller

reporting companies, an issuer may describe its products as ―DRC conflict undeterminable‖ if it is

unable to determine whether they are conflict-free.

Other resources

• To the Point, Final conflict minerals rule addresses many stakeholder concerns (SCORE No. CC0353)

Disclosure of Payments by Resource Extraction Issuers (Release No. 34-67717)

Date issued: 22 August 2012

Summary

The SEC issued a final rule requiring issuers engaged in the commercial development of oil, natural gas

or minerals to disclose payments to the US and foreign governments. The rule requires these resource

extraction issuers to disclose annually the amount of payments by type, by project and by

government. The data must be filed using XBRL on the new Form SD, due 150 days after the issuer‘s

fiscal year-end. Congress mandated this rule to make payments to governments for commercial

development of natural resources more transparent.

Effective date

Resource extraction issuers will be required to comply with the rule for fiscal years ending after

30 September 2013. However, an issuer may provide a partial-year report if its fiscal year began

before 30 September 2013. Therefore, these issuers will not be required to report payments made

before 1 October 2013.

Other resources

• To the Point, Oil, gas and minerals issuers must disclose payments to governments

(SCORE No. CC0354)

Securities and Exchange Commission (SEC)

Final SEC rules

18 Third Quarter 2012 Standard Setter Update Financial reporting and accounting developments

Eliminating the Prohibition Against General Solicitation and General Advertising in Rule 506 and Rule 144A Offerings (Release No. 33-9354)

Date issued: 29 August 2012 — comment period ended 5 October 2012

Summary

The SEC proposed a rule that would allow companies to solicit investors and advertise offerings of

restricted securities that are exempt from registration because all purchasers are accredited investors.

This proposed rule would revise Rule 506 of Regulation D and Rule 144A under the Securities Act of

1933 to implement Section 201 of the Jumpstart Our Business Startups Act (JOBS Act).

As proposed, Rule 506(c) of Regulation D would allow any company (public, private, established or

start-up) to expand its pool of potential investors without SEC registration. Rule 506(c) also would be

available for use by hedge funds, venture capital funds and private equity funds. Issuers relying on the

Rule 506(c) exemption would be permitted to advertise their offerings if they take reasonable steps to

verify that the actual purchasers are accredited investors, as defined in Rule 501(a) of Regulation D.

The proposal also would revise Securities Act Rule 144A, which provides a safe harbor for the resale

of restricted securities to large institutional investors known as qualified institutional buyers (QIBs).

As proposed, offers of restricted securities could be made without registration to investors that are

not QIBs as long as the securities are sold only to investors that the seller and any person acting on its

behalf reasonably believe are QIBs.

Effective date

The proposal does not suggest an effective date.

Other resources

• To the Point, SEC proposes allowing solicitation and advertising in certain exempt offerings

(SCORE No. CC0355)

Commission Guidance Regarding Definitions of Mortgage Related Security and Small Business Related Security (Release No. 34-67448)

Date issued: 17 July 2012 — comment period ended 22 August 2012

Summary

The SEC issued an interpretive release to provide transitional guidance in applying the Exchange Act‘s

definitions of mortgage-related securities and small business-related securities. On 20 July 2012,

Section 939(e) of the Dodd-Frank Act removed references to credit ratings determined by ―nationally

recognized statistical rating organizations‖ (NRSROs) from the Exchange Act. The NRSRO rating

references were replaced with ―standards of creditworthiness as established by the Commission‖;

however, the SEC has not yet established such standards. Therefore, the SEC provided transitional

definitions that retain references to credit ratings of NRSROs, as follows:

• Mortgage-related security — a security rated one of the two highest categories by at least one NRSRO

• Small business-related security — a security that is rated in one of the four highest rating categories

by at least one NRSRO

SEC rule proposals and other releases

19

The SEC also requested further public comment to help the Commission develop proposed credit

standards that will replace NRSRO credit ratings. The release requested comments on all aspects of

Section 939(e) of the Dodd-Frank Act, supplementing the original request in the 27 April 2011

proposed rule, which is discussed below.

Effective date

The interpretive release specifies that this guidance was effective 20 July 2012 and will apply until the

Commission‘s final rules on new credit standards are effective.

”Roadmap” on Phase in of Derivatives Regulation (Release No. 34-67177)

Date issued: 11 June 2012 — comment period ended 13 August 2012

Summary

The SEC issued a policy statement outlining the sequence of compliance dates it anticipates for final

rules it will adopt under Title VII of the Dodd-Frank Act. The statement does not estimate when the

rules will become effective, but says they will be phased in to avoid the disruption that could occur if all

of the new rules took effect simultaneously. To date, the Commission has proposed nearly all the rules

required under Title VII of the Act and has adopted some final rules.

Chairman Mary Schapiro stated, ―The policy statement seeks to provide a ‗roadmap‘ to market

participants and the public on how we expect to implement the various regulatory requirements for

this market. We look forward to public comment on our anticipated sequencing as we continue to

adopt and implement the rules under the law.‖

Title VII of the Act establishes a framework to regulate over-the-counter derivatives, authorizing the

Commodity Futures Trading Commission (CFTC) to regulate ―swaps,‖ and the SEC to regulate

―security-based swaps.‖

Prohibition and Restrictions on Proprietary Trading and Certain Interests in, and Relationships with, Hedge Funds and Private Equity Funds (Release No. 34-65545)

Date issued: 12 October 2011 — comment period ended 13 February 2012

Summary

The SEC proposed a rule known as the Volcker rule that would prohibit and restrict the ability of a

banking entity and nonbank financial company supervised by the Federal Reserve Board to engage in

proprietary trading and have certain interests in, or relationships with, a hedge fund or private equity

fund. It would implement Section 619 of the Dodd-Frank Act, which added new Section 13 to the Bank

Holding Company Act of 1956 (BHC Act).

The proposal would require banking entities to establish internal compliance programs, subject to

supervisory oversight, that are designed to verify and monitor compliance with the prohibitions and

restrictions of Section 619. The proposal also would require firms with significant trading operations to

report certain quantitative measurements, which would be designed to help the supervisory agency and

banking entities identify prohibited proprietary trading, to the appropriate federal supervisory agency.

20 Third Quarter 2012 Standard Setter Update Financial reporting and accounting developments

The proposal also would exempt transactions in certain instruments from the prohibitions of

proprietary trading and would exempt activities such as market making, underwriting and risk-

mitigating hedging.

The proposal was issued jointly with the Federal Deposit Insurance Corporation, the Federal Reserve

Board and the Office of the Comptroller of the Currency.

Effective date

Section 13 of the BHC Act went into effect on 21 July 2012, by statute. However, a banking entity has

up to two years after the effective date (i.e., no later than 21 July 2014) to bring its activities and

investments into conformance with Section 13 of the BHC Act (referred to as the conformance

period). Final rules to implement Section 619 of the Dodd-Frank Act continue to be delayed.

Prohibition against Conflicts of Interest in Certain Securitizations (Release No. 34-65355)

Date issued: 19 September 2011 — comment period ended 13 February 2012

Summary

The SEC proposed a rule that would implement Section 621 of the Dodd-Frank Act and prohibit those

who package and sell asset-backed securities (ABS) from benefiting directly or indirectly from certain

adverse events (e.g., a decline in the performance of the underlying asset pool, a decline in market

value of the ABS) if a reasonable investor would consider the conflict important to his or her

investment decision. The proposal also would prohibit entities involved in creating or selling an ABS

from participating in transactions in which they would benefit directly or indirectly from adverse

events for one year after the first sale of the ABS. Exceptions include activities related to hedging to

mitigate risks, liquidity commitments and bona fide market making.

Effective date

The proposal does not suggest an effective date.

Re-proposal of Shelf Eligibility Conditions for Asset-Backed Securities and Other Additional Requests for Comment (Release No. 33-9244)

Date issued: 26 July 2011 — comment period ended 4 October 2011

Summary

As originally proposed in April 2010, to distinguish the registration of ABS, Forms S-1 and S-3 would

be replaced by new Form SF-1 and new Form SF-3, which could be used for delayed ABS offerings

(i.e., shelf registration). Form S-3 currently requires ABS to have an investment-grade credit rating.

Instead, as re-proposed in response to the Dodd-Frank Act, Form SF-3 would require the following at

the time of the offering:

• Certification by an executive officer of the issuer that the disclosure is accurate and that the

securitization is designed to produce cash flows in amounts sufficient to service expected payments

21

• Appointment of a credit risk manager to review assets if certain trigger events occur

• Procedures to resolve pending or disputed requests to repurchase assets alleged to not comply with

representations and warranties

• Agreement that the issuer will provide notice in a public filing if an investor asks to communicate

with other investors

In addition, new Forms SF-1 and SF-3 would require the following:

• Delinquent assets must be no more than 20% of the asset pool

• The residual value of physical assets underlying securitized leases, other than motor vehicles, must

be no more than 20% of the asset pool

The SEC also requested further public comment on disclosures that, as originally proposed (see Asset-

Backed Securities rule proposal below), would require ABS issuers to provide standardized data on

specific loans and assets within an ABS pool (or group-level data for securitized credit card receivables)

in eXtensible Markup Language (XML) both at the time of securitization and on an ongoing basis.

Effective date

The proposal does not suggest an effective date.

Broker-Dealer Reports (Release No. 34-64676)

Date issued: 15 June 2011 — comment period ended 26 August 2011

Summary

The SEC proposed amendments that would require a broker-dealer with custody of customer assets to

assert compliance with the Financial Responsibility Rules in a new Compliance Report and have an

independent registered public accounting firm examine its compliance and issue a report based on that

examination. All broker-dealers also would be required to provide information about their custody

practices in a new form each quarter. Under the proposal, the SEC and designated examining authorities

also would gain access to auditors and audit documentation of clearing and carrying broker-dealers.

Effective date

The anticipated effective dates in this proposed rule for annual reporting amendments have passed.

These dates will be reevaluated when the SEC issues a final rule.

Other resources

• To the Point, SEC turns spotlight on broker-dealer financial reporting and custody

(SCORE No. CC0327)

• Comment Letter (SCORE No. CC0333)

22 Third Quarter 2012 Standard Setter Update Financial reporting and accounting developments

Proposed Rules for Nationally Recognized Statistical Rating Organizations (Release No. 34-64514)

Date issued: 18 May 2011 — comment period ended 8 August 2011

Summary

The SEC proposed rules to improve the quality, integrity and transparency of credit ratings issued by a

NRSRO. The proposed rules would require each NRSRO to, among other things:

• File an annual report assessing the effectiveness of its internal controls in assigning credit ratings

• Prohibit its credit-rating analysts from participating in both the sales and marketing of its products

and services and determining or monitoring credit ratings

• Establish a process to review and revise, if necessary, a rating when an employee who participated

in determining the rating is hired within one year by the entity being rated or by the issuer,

underwriter or sponsor of a product subject to the rating

• Establish standards of training, experience and competence of credit analysts

• Publicly disclose its methodology for determining credit ratings, as approved by the board of

directors, in addition to the assumptions underlying the methodology and any changes or errors in

methodology

• Disclose statistics and other data (e.g., frequency of default by companies or products rated) to

allow investors to better analyze the NRSRO‘s performance

The proposal also would require issuers and underwriters of ABS and NRSROs to disclose the findings

and conclusions of any third-party due diligence service provider with respect to ABS. The proposed

rules were required by Section 932 of the Dodd-Frank Act.

Effective date

The proposal does not suggest an effective date.

Other resources

• Comment Letter (SCORE No. CC0332)

Removal of Certain References to Credit Ratings Under the Securities Exchange Act of 1934 (Release No. 34-64352)

Date issued: 27 April 2011 — comment period ended 5 July 2011

Summary

As part of its effort to reduce regulator and investor reliance on credit ratings, the SEC proposed

precluding broker-dealers from relying on credit ratings when calculating their net capital. Under the

proposal, to avoid taking a higher ―haircut‖ for purposes of computing net capital, a broker-dealer

would be required to determine that a holding of commercial paper, nonconvertible debt or preferred

stock has only a ―minimal amount of credit risk.‖ For this purpose, a broker-dealer would be required

to consider a variety of factors in assessing the credit and liquidity risks of the security and would need

to establish, maintain and enforce written policies and procedures for doing so.

23

This proposal also summarizes standards of creditworthiness that would replace the credit rating

references removed from the Exchange Act definitions of mortgage-related securities and small

business securities by Section 939(e) of the Dodd-Frank Act.

Effective date

Although the proposal does not provide an effective date, the provisions of Section 939(e) of the Dodd-

Frank Act were effective 21 July 2012 and replaced credit rating references in the definitions of

mortgage-related securities and small business-related securities with ―standards of creditworthiness as

established by the Commission.‖ However, because the SEC has not yet established these standards, the

SEC issued transitional guidance that was effective 20 July 2012 and will apply until the Commission‘s

final rules on new credit standards are effective.

Credit Risk Retention (Release No. 34-64148)

Date issued: 30 March 2011 — comment period ended 1 August 2011

Summary

The SEC proposed rules to require an ABS sponsor to retain at least 5% of the credit risk of the assets

collateralizing the ABS without hedging the holdings. The proposal would give a sponsor various

options to retain risk. ABS collateralized by ―qualified residential mortgages‖ (QRMs), as defined in the

proposal, would be exempt from the risk-retention requirements. The proposal also would exempt a

sponsor from risk retention if the ABS are exclusively collateralized by commercial loans, commercial

mortgages or automobile loans that meet underwriting standards specified in the proposal.

Government-guaranteed securitizations and assets also would be exempt from the proposal.

The proposal is required by Section 941(b) of the Dodd-Frank Act and was jointly proposed with other

regulators, including the Office of the Comptroller of the Currency, the Federal Reserve and the

Federal Deposit Insurance Corporation.

Effective date

The Dodd-Frank Act requires that the regulations become effective one year after the publication of

final rules in the Federal Register for residential mortgage ABS and two years after publication for

other ABS.

Other resources

• To the Point, Proposed risk retention requirements for sponsors of asset-backed securities

(SCORE No. CC0320)

• Comment Letter (SCORE No. CC0330)

24 Third Quarter 2012 Standard Setter Update Financial reporting and accounting developments

Incentive-Based Compensation Arrangements (Release No. 34-64140)

Date issued: 29 March 2011 — comment period ended 31 May 2011

Summary

The SEC (along with other financial regulators) proposed a rule on incentive-based compensation by

financial institutions, such as brokers, dealers or investment advisers, with assets of $1 billion or

more. The rule would:

• Require them to provide a report describing the firm‘s incentive-based compensation arrangements

• Prohibit incentive-based compensation arrangements that encourage inappropriate risk-taking

(e.g., providing excessive compensation, risking material financial loss)

• Prohibit incentive-based compensation arrangements that have not been adopted under policies

and procedures developed and maintained by the institution and approved by its board of directors

The proposal would require financial institutions with assets of $50 billion or more to defer 50% of

executive officer incentive compensation for three years. During that period, any deferred incentive-

based compensation would be adjusted for losses incurred by the financial institution after the

compensation was initially awarded. The proposed rule is required by Section 956 of the Dodd-Frank Act.

Effective date

Six months after a final rule is published in the Federal Register.

References to Credit Ratings in Certain Investment Company Act Rules and Forms (Release No. 33-9193)

Date issued: 3 March 2011 — comment period ended 25 April 2011

Summary

The SEC proposed a rule that would eliminate the credit ratings requirement for investments by a

money market fund. Rule 2a-7 of the Investment Company Act currently requires money market funds

to invest only in securities that receive the two highest short-term credit ratings. Under the proposal,

money market funds would be restricted to securities that a fund‘s board of directors or its delegate

determines have the highest capacity to meet their short-term financial obligations (new first-tier

definition) or securities the board of directors or its delegate determines present minimal credit risks

(new second-tier definition). Consistent with current rules, at least 97% of a money market fund‘s

portfolio must be invested in first-tier securities.

The proposal also would remove credit rating references in SEC rules under the Investment Company

Act related to repurchase agreements, certain business and industrial development company (BIDCO)

investments and shareholder reports. The proposed rule is required by Section 939A of the Dodd-

Frank Act.

Effective date

The proposal does not suggest a possible effective date.

25

End-User Exception to Mandatory Clearing of Security-Based Swaps (Release No. 34-63556)

Date issued: 15 December 2010 — comment period ended 4 February 2011

Summary

The Dodd-Frank Act established a framework for regulating the over-the-counter swaps markets and

requires that swaps be centrally cleared if the transactions are of a type that the CFTC or SEC

determines must be cleared. However, the Dodd-Frank Act provides an exception to the mandatory

clearing of swaps for counterparties meeting certain criteria so that they may continue to hedge

commercial risks without being subject to the increased costs associated with the new requirements.

The SEC proposed a rule describing the steps an end-user would need to take to inform the regulators

about how it meets its financial obligations when engaging in a security-based swap transaction that is

exempt from mandatory clearing under Section 763 of the Dodd-Frank Act.

Effective date

The proposal does not suggest an effective date.

Reporting of Proxy Votes on Executive Compensation and Other Matters (Release No. 34-63123)

Date issued: 18 October 2010 — comment period ended 18 November 2010

Summary

Section 951 of the Dodd-Frank Act requires institutional investors to report, at least annually, how

they voted on executive compensation matters. The SEC proposed requiring institutional investment

managers that manage a portfolio with an aggregate value in equity securities of at least $100 million

to disclose the securities voted, executive compensation matters voted on, the number of shares

voted and how the manager voted these shares.

Effective date

The anticipated effective dates in this proposed rule have passed. These dates will be reevaluated

when the SEC issues a final rule.

Other resources

• Hot Topic, SEC proposal: ―Say-on-pay‖ shareholder votes on executive compensation

(SCORE No. CC0308)

26 Third Quarter 2012 Standard Setter Update Financial reporting and accounting developments

Short-Term Borrowings Disclosure (Release No. 33-9143)

Date issued: 17 September 2010 — comment period ended 29 November 2010

Summary

The SEC proposed amendments to require new disclosures about short-term borrowings in

Management‘s Discussion and Analysis of Financial Condition and Results of Operations (MD&A).

The proposal would require quantitative and qualitative disclosures about various types of short-term

borrowings in annual and interim MD&A, including the average amount outstanding during the

reporting period, the maximum outstanding during the reporting period and the reasons for any

material differences between average and period-end amounts. The SEC staff has said that it is

considering concerns expressed about the potential cost of these proposed disclosure requirements.

Effective date

The proposal does not suggest an effective date.

Other resources

• Hot Topic, SEC proposal: Short-term borrowings disclosures in MD&A (SCORE No. CC0303)

• Comment Letter (SCORE No. CC0312)

Asset-Backed Securities (Release No. 33-9117)

Date issued: 7 April 2010 — comment period ended 2 August 2010

Summary

Before the Dodd-Frank Act was enacted, the SEC proposed amendments to Regulation AB regarding

the offering, disclosures and reporting processes for publicly issued ABS. The proposed amendments

would establish special registration forms for ABS, new conditions for ABS shelf registrations, more

detailed disclosures about specific loans and assets within the ABS pool and filing of a computer

program to model the cash flow provisions of the transaction agreement. The proposed amendments

also would impose new disclosure and reporting requirements for many privately placed ABS.

The SEC re-proposed some aspects of the proposal in July 2011 (see above).

Effective date

The proposal does not suggest an effective date.

Other resources

• Hot Topic, SEC proposal: Asset-backed securities (SCORE No. CC0296)

• Comment Letter (SCORE No. CC0301)

27

Final Report on IFRS Work Plan

In the SEC staff‘s July 2012 Final Report on its Work Plan about a possible move to a set of global

accounting standards, the staff summarized what it has learned. The Commission will use the Final

Report, along with other information, to decide whether and, if so, when and how to incorporate IFRS

into the financial reporting system for US issuers. The Final Report does not include a recommendation

and does not indicate that the Commission has made a policy decision about incorporating IFRS.

The Final Report addresses the staff‘s findings in six focus areas identified in the Work Plan. In

executing the Work Plan, the staff compared IFRS with US GAAP and studied how consistently IFRS

was applied in practice. The staff also talked to investors, preparers and regulators about the potential

incorporation of IFRS.

The staff reported that the IASB has made significant progress in developing a comprehensive set of

accounting standards, including its joint efforts with the FASB. The staff also observed that the global

financial reporting community generally perceives IFRSs to be high quality. However, several key

themes emerged, including:

• IFRS continues to be underdeveloped in certain areas, such as extractive industries, insurance and

rate-regulated industries.

• The consistency of global application of IFRS could be improved to reduce differences.

• The IFRS Interpretations Committee (IFRS IC) should do more to address emerging accounting issues

on a timely basis. The staff stated that the IFRS Trustees are changing the operating procedures of

the IFRS IC, but it is unclear what effect the changes will have.

• Many existing laws and regulations currently refer to US GAAP. If IFRS replaced US GAAP, these laws

and regulations would need to be rewritten.

• Investors expressed concerns about the IASB‘s independence under its current funding mechanism

as well as the potential for political interference in standard setting.

• Investor, issuer and regulator knowledge of IFRS varies.

• The cost of adopting IFRS, and the effect on a company‘s systems and processes, may be prohibitive.

In the Final Report, the SEC staff indicated that many of the issues and concerns identified by

constituents may be mitigated by an endorsement approach. In its May 2011 Staff Paper, the staff

outlined a possible approach by which the FASB could endorse new IFRSs for incorporation into US

GAAP potentially without change, but that the FASB would retain the authority to modify IFRSs for

adoption in the US.

Under this approach, the FASB would use a decision protocol that would consider the public interest and

protection of investors. The FASB also would have the responsibility and authority to issue guidance or

standards to fill perceived gaps, such as when the IFRS IC has not yet addressed emerging issues.

Other SEC

28 Third Quarter 2012 Standard Setter Update Financial reporting and accounting developments

This approach would help ensure that standards are of sufficient quality, address gaps in current IASB

standards or provide needed interpretive guidance on emerging issues, and reduce the need to rewrite

existing regulations and contracts. An endorsement mechanism also would help ensure a strong US

voice in the IASB standard-setting process. The SEC staff has not made a formal public

recommendation to the Commissioners.

Other resources

• To the Point, SEC staff releases Final Report on IFRS (SCORE No. BB2377)

• To the Point, Support grows for keeping US GAAP but basing future standards on IFRS

(SCORE No. BB2229)

• To the Point, SEC staff issues two papers on IFRS (SCORE No. BB2221)

• To the Point, SEC hears mixed feedback at roundtable on IFRS (SCORE No. BB2155)

• To the Point, SEC Staff Paper explores a way to incorporate IFRS in the US (SCORE No. BB2302)

• Comment Letter, Work Plan for the Consideration of Incorporating International Financial

Reporting Standards into the Financial Reporting System for U.S. Issuers, ―Exploring a Possible

Method of Incorporation‖ (SCORE No. CC0329)

SEC staff issues more guidance on implementing the JOBS Act

Summary

The staff of the SEC‘s Division of Corporation Finance issued another set of Frequently Asked

Questions (FAQs) to provide implementation guidance about the JOBS Act. These FAQs continue to

focus on Title I of the JOBS Act concerning emerging growth companies (EGCs). The FAQs cover a

range of topics, including the applicability of the confidential submission process to an exchange offer

or merger, assessing EGC eligibility in a spin-off or after a significant acquisition accounted for as a

forward acquisition or reverse merger, and an issuer‘s disclosure obligations with respect to selected

financial data and the ratio of earnings to fixed charges after it ceases to qualify as an EGC.

Other resources

• Technical Line, Implementing the JOBS Act (SCORE No. CC0348)

• To the Point, JOBS Act to promote capital formation (SCORE No. CC0345)

EDGAR accepting confidential draft registration statements as of 1 October 2012

Summary

The SEC modified EDGAR to accept confidential submissions of draft registration statements

beginning 1 October 2012. On 15 October 2012, the effective date of the EDGAR Filer Manual for

EDGAR Release 12.2, the current secure email system was no longer available for confidential

submissions. The new system allows EGCs and eligible foreign private issuers to electronically file

previously submitted draft registration statements instead of including them as exhibits to their first

publicly filed registration statement.

29

SEC Advisory Committee on Small and Emerging Companies meets

Summary

The SEC Advisory Committee on Small and Emerging Companies (the Committee) did not make any

recommendations at its 7 September 2012 meeting in San Francisco, but it is expected to make

recommendations at a future date for increased tick sizes, relief from conflict minerals disclosures and

expanded eligibility of EGC status for small publicly traded companies with capitalizations of $250

million or less.

The Committee discussed increasing tick sizes (the penny pricing increment for securities) for smaller

companies. This topic was the subject of the SEC staff‘s Report to Congress on Decimalization, which

was required by the JOBS Act and issued in July 2012. In its report, the SEC staff concluded that the

SEC should not immediately propose an increase in tick sizes, but the Commission should seek the

opinions (e.g., hold a roundtable) of key stakeholders on the topic of decimalization.

The Committee also discussed whether EGC status should be extended to companies that meet all of

the criteria except the timing of their initial public equity offerings. Under the JOBS Act, an issuer

cannot qualify as an EGC if its ―first sale of common equity securities‖ under an effective registration

statement (e.g., Forms S-1, S-8, S-11) occurred on or before 8 December 2011.

The Committee also discussed a potential recommendation that the SEC provide exemptive relief from

the conflict minerals disclosure requirements for small publicly traded companies.

2013 US GAAP XBRL Taxonomy available for comment by 29 October 2012

Summary

The FAF made available a draft of the 2013 US GAAP Financial Reporting Taxonomy (2013

Taxonomy) for public comment. Comments are due by 29 October 2012. The FAF also published a

taxonomy viewer and guidance that describes changes from the 2012 Taxonomy.

The 2013 Taxonomy may be used for SEC XBRL exhibit submissions only after it is approved by the

SEC (expected in early 2013) and listed as available for use on the SEC website. Until then, companies

should use the 2012 or 2011 version.

SEC invites comments on XBRL submissions

Summary

The SEC requested comments on the costs and benefits of XBRL interactive data that registrants

submit in filings under the Securities Act of 1933 (Securities Act) and the Exchange Act. The SEC

asked for comments on: (1) whether XBRL information is necessary for the proper functioning of

the SEC and whether the information is useful; (2) whether an estimate of 59 hours of preparation

per submission is accurate; (3) how to improve the quality, utility and clarity of the XBRL data; and

(4) how to minimize the burden of XBRL compliance on issuers. Comments were due 5 October 2012.

30 Third Quarter 2012 Standard Setter Update Financial reporting and accounting developments

New Iran sanctions law requires disclosures in periodic reports

Summary

President Barack Obama signed the Iran Threat Reduction and Syria Human Rights Act of 2012 on 10

August 2012 which, among other things, requires public companies to disclose in their annual and

quarterly reports filed with the SEC whether they or their affiliates knowingly engaged in various

prohibited activities involving Iran. The new act amends Section 13 of the Exchange Act to require

public companies to self-report any prohibited activities, including the nature and extent of the

activity, gross revenues and net profits attributable to the activity, and whether the registrant or any

of its affiliates intends to continue engaging in such activities. Disclosures are required in annual and

quarterly reports filed with the SEC on or after 6 February 2013.

Study on municipal securities market

Summary

The SEC issued its Report on the Municipal Securities Market, which focuses on strengthening the

protection of investors in municipal securities. The Commission‘s report includes recommendations

about the disclosure of financial information and the structure of the municipal securities market.

The report‘s disclosure recommendations include authorizing the Commission to eliminate the

exemptions under both the Securities Act and Exchange Act for conduit borrowers that are not

municipal entities and to require timely issuance of financial information by municipal issuers. The

report‘s market structure suggestions include improving pricing transparency and enhancing dealer

pricing obligations in the municipal securities market.

31

PCAOB Release No. 2012-004, Auditing Standard No. 16, Communications with Audit Committees

Date adopted: 15 August 2012

Summary

The PCAOB adopted Auditing Standard No. 16, Communications with Audit Committees, in an effort to

enhance the relevance, timeliness and quality of communications between the auditor and audit

committee about significant audit and financial statement matters. The standard supersedes PCAOB

interim standard AU section 380, Communication with Audit Committees, and AU section 310,

Appointment of the Independent Auditor, and amends a number of other related PCAOB interim

standards. The standard retains substantially all of the matters requiring communication in the current

auditing standards, but for certain matters, it modifies and expands existing requirements. For

example, it emphasizes effective two-way communication on matters such as significant risks, critical

accounting estimates, difficult or contentious matters, significant unusual transactions and going

concern. The Board also believes the standard better aligns the communication requirements with

performance requirements in other PCAOB standards, including the implementation of the risk

assessment standards (Auditing Standard Nos. 8-15) that became effective in December 2010.

The standard, which is subject to SEC approval, will be effective for public company audits of fiscal years

beginning on or after 15 December 2012. The standard also will apply to the audits of brokers and

dealers if the SEC directs those entities to comply with PCAOB standards. The standard is the first issued

by the PCAOB since the enactment of the JOBS Act and therefore requires additional SEC approval

(i.e., the SEC will evaluate its ability to promote efficiency, competition and capital formation) for it to

apply to the audits of emerging growth companies. The PCAOB is specifically seeking this approval.

On 10 September 2012, the SEC issued Notice of Filing of Proposed Rules on Auditing Standard No. 16,

Communications with Audit Committees and Related and Transitional Amendments to PCAOB Standards

(Release No. 34-67807) requesting public comment. The comment period ended 9 October 2012.

Other resources

• Technical Line, Auditor communications with audit committees (SCORE No. EE0907)

• To the Point, PCAOB seeks comment on expanded audit committee communications

(SCORE No. EE0897)

• Comment Letter (SCORE No. EE0898)

Public Company Accounting Oversight Board (PCAOB)

PCAOB proposed standards and other projects

32 Third Quarter 2012 Standard Setter Update Financial reporting and accounting developments

PCAOB Release No. 2012-002, Proposed Amendments to Conform the Board’s Rules and Forms to the Dodd-Frank Act

Date issued: 28 February 2012 — comment period ended 30 April 2012

Summary

The PCAOB proposed amendments to its rules and forms to apply them to auditors of brokers and

dealers registered with the SEC, as authorized by the Dodd-Frank Act. The proposed amendments

would include references to audits and auditors of brokers and dealers in relevant Board rules. The

proposal also would make the Board‘s auditing standards, including most of the Board‘s ethics and

independence requirements, applicable to broker-dealer audits, effective when the SEC finalizes its

rules requiring auditors of brokers and dealers to comply with PCAOB standards. (See Broker-Dealer

Reports in SEC section above.) In addition, the amendments would change PCAOB registration,

withdrawal and reporting forms to, among other things, require that auditors of brokers and dealers

identify annually each audit report issued for a broker or dealer. PCAOB rules require similar reporting

by auditors of public companies.

Other resources

• Comment Letter (SCORE No. BB2337)

PCAOB Release No. 2012-001, Proposed Auditing Standard, Related Parties

Date issued: 28 February 2012 — extended comment period ended 31 May 2012

Summary

The PCAOB issued for comment a proposed auditing standard to improve the auditor‘s evaluation

of a public company‘s identification of, accounting for and disclosure about its relationships and

transactions with related parties. The proposed standard would expand the specific procedures

auditors perform to identify an entity‘s related parties, to understand the nature of the relationships

between the entity and its related parties and to understand the terms and business purpose, or lack

thereof, of the entity‘s transactions with its related parties.

The Board also proposed amendments on auditing significant unusual transactions, defined as

significant transactions outside the normal course of business of a company or that otherwise appear

to be unusual due to their timing, size or nature. In addition, the Board proposed amendments that it

believes would improve the auditor‘s understanding of a company‘s financial relationships with its

executive officers. The proposals would supersede the Board‘s interim auditing standard AU

section 334, Related Parties, and amend other auditing standards, including AU section 316,

Consideration of Fraud in a Financial Statement Audit, and AS No. 12, Identifying and Assessing Risks

of Material Misstatement. The PCAOB‘s current standard-setting agenda calls for it to either adopt a

final standard or re-propose the standard for public comment during the fourth quarter of 2012.

Other resources

• To the Point, PCAOB proposals on related parties and significant unusual transactions

(SCORE No. EE0899)

• Comment Letter (SCORE No. EE0904)

33

PCAOB Release No. 2011-007, Proposed Auditing Standard, Improving the

Transparency of Audits

Date issued: 11 October 2011 — comment period ended 9 January 2012

Summary

The PCAOB issued for comment proposed amendments to its standards that would require registered

public accounting firms to disclose in the audit report the name of the engagement partner, along with

other accounting firms that worked on the audit and certain other participants. The proposal follows

and builds on a related concept release issued on 28 July 2009, which considered requiring the

engagement partner to sign his or her name in the audit report. The latest proposal would not require

the engagement partner to sign his or her name in the audit report, but would amend the PCAOB

annual report on Form 2 to require firms to disclose the engagement partner‘s name for each audit

report listed in the form. The proposal also would require disclosures in the audit report about other

accounting firms that participated in the audit and other participants not employed by the auditor. This

disclosure would be required for participants that completed 3% or more of the total hours on the audit

and would apply to member firms of an affiliated group. The PCAOB‘s current standard-setting agenda

calls for it to either adopt final amendments or re-propose amendments for public comment in 2012.

Other resources

• Comment Letter (SCORE No. EE0896)

PCAOB Release No. 2011-006, Concept Release on Auditor Independence and Audit Firm Rotation

Date issued: 16 August 2011 — extended comment period ended 28 July 2012

Summary

The PCAOB issued a concept release seeking comment on possible ways to enhance auditor

independence, objectivity and professional skepticism, including mandatory audit firm rotation.

Mandatory firm rotation would limit the number of consecutive years that a registered public

accounting firm could serve as the auditor of a public company.

The concept release notes that proponents of rotation believe it would allow auditors to better

withstand client pressures and offer an opportunity for a ―fresh look‖ at the company‘s financial

reporting, while opponents believe it could lower audit quality. The PCAOB is also interested in other

measures to enhance auditor independence, objectivity and professional skepticism.

In March, June and October 2012, the PCAOB held public meetings with numerous panelists, including

institutional investors, former government officials, audit committee chairs of major corporations,

senior executives of issuers, representatives from trade associations, academics and senior leaders of

audit firms. The PCAOB plans to compile panelists‘ suggestions and to consider additional public

meetings on ways to further enhance auditor independence, objectivity and professional skepticism.

34 Third Quarter 2012 Standard Setter Update Financial reporting and accounting developments

Other resources

• To the Point, PCAOB public meeting on auditor independence and audit firm rotation

(SCORE No. EE0900)

• Technical Line, Respondents to PCAOB overwhelmingly oppose mandatory audit firm rotation

(SCORE No. BB2256)

• Technical Line, What to consider when responding to the PCAOB about auditor independence and

audit firm rotation (SCORE No. BB2191)

• To the Point, PCAOB seeks comment on mandatory audit firm rotation (SCORE No. EE0876)

• Comment Letter (SCORE No. BB2219)

• Summary of key messages — PCAOB concept release on auditor independence and mandatory firm

rotation (SCORE No. BB2218)

PCAOB Release No. 2011-005, Proposed Auditing Standard, Auditing Supplemental Information Accompanying Audited Financial Statements

Date issued: 12 July 2011 — comment period ended 12 September 2011

Summary

The proposed audit standard would supersede PCAOB standard AU section 551, Reporting on

Information Accompanying the Basic Financial Statements in Auditor-Submitted Documents, and

related amendments. The proposal outlines the auditors‘ responsibilities when they are engaged to

audit supplemental information accompanying audited financial statements, such as the supporting

schedules that broker-dealers are required to file with the SEC and certain supplemental information

issuers include in SEC filings. The PCAOB‘s current standard-setting agenda calls for it to adopt a final

standard or re-propose the standard for public comment in 2012.

Other resources

• Comment Letter (SCORE No. BB2182)

PCAOB Release No. 2011-004, Proposed Standards for Attestation Engagements Related to Broker and Dealer Compliance or Exemption Reports Required by the U.S. Securities and Exchange Commission

Date issued: 12 July 2011 — comment period ended 12 September 2011

Summary

The proposals consist of two attestation standards that would apply to auditors‘ examinations of

Compliance Reports and reviews of Exemption Reports that the SEC has proposed as filing

requirements for broker-dealers. The SEC proposals would require that the auditor‘s examination or

review of the compliance report and exemption report be conducted in accordance with PCAOB

standards. (See Broker-Dealer Reports in SEC section above.) The PCAOB‘s current standard-setting

agenda calls for it to adopt a final standard or re-propose the standard for public comment in 2012.

35

Other resources

• Comment Letter (SCORE No. BB2185)

PCAOB Release No. 2011-003, Concept Release on Possible Revisions to PCAOB Standards Related to Reports on Audited Financial Statements

Date issued: 21 June 2011 — comment period ended 30 September 2011

Summary

The PCAOB issued a concept release seeking comment on potential changes to the auditor‘s reporting

model. The release follows calls from investors for information beyond that reflected in the current

auditor‘s report, which typically provides only a pass-fail opinion. While the PCAOB stressed that it

intends to retain the pass-fail opinion, the Concept Release presents the following alternatives that the

PCAOB says could increase the transparency and relevance of the auditor‘s report:

• Supplement the current auditor‘s report with an ―Auditor Discussion and Analysis‖ document that

could address: (1) areas of risk in the entity‘s financial reporting and the auditor‘s response to those

risks, (2) the quality of the entity‘s accounting policies and practices, (3) the auditor‘s views on

significant judgments and estimates made in preparing the financial statements, (4) difficult or

contentious issues and (5) auditor independence matters.

• Require and expand the use of emphasis paragraphs in the auditor‘s report to draw attention to

important matters about the financial statements and disclosures. This could also include

commentary on key audit procedures performed pertaining to the identified matters.

• Require the auditor to report on information outside the financial statements, such as Management‘s

Discussion and Analysis in its Form 10-K, earnings releases and non-GAAP information.

• Clarify certain language and concepts in the auditor‘s report, including the meaning of ―reasonable

assurance‖ in the context of the audit, the auditor‘s responsibilities related to the detection of

fraud, the auditor‘s responsibility for financial statement disclosures, management‘s responsibility

for the preparation of the financial statements, the auditor‘s responsibility for information outside

of the financial statements and auditor independence.

The PCAOB noted that any change could involve a combination of the above approaches or

approaches not discussed in the Concept Release. The PCAOB held a public roundtable discussion on

15 September 2011, and its current standard-setting agenda calls for it to issue a proposed standard

in 2012.

Other resources

• To the Point, PCAOB explores changes to the auditor‘s report (SCORE No. EE0873)

• Comment Letter (SCORE No. BB2192)

36 Third Quarter 2012 Standard Setter Update Financial reporting and accounting developments

PCAOB Release No. 2010-005, Application of the “Failure to Supervise” Provision of the Sarbanes-Oxley Act of 2002 and Solicitation of Comment on Rulemaking Concepts

Date issued: 5 August 2010 — comment period ended 3 November 2010

Summary

The PCAOB issued a two-part Release to (1) highlight the scope of Section 105(c)(6) of the Sarbanes-

Oxley Act of 2002, which authorizes the PCAOB to impose sanctions on registered public accounting

firms and their supervisory personnel for failing to reasonably supervise an associated person who has

violated certain laws, rules or standards, and (2) solicit comment on specific rulemaking concepts that,

while not imposing any new supervision responsibilities, would require firms to make and document clear

assignments of the supervision responsibilities that are already required to be part of any audit practice.

The PCAOB‘s current standard-setting agenda calls for it to issue proposed amendments for public

comment in 2012.

Other resources

• Comment Letter (SCORE No. BB2048)

PCAOB Release No. 2010-003, Proposed Auditing Standard Related to Confirmation

Date issued: 13 July 2010 — comment period ended 13 September 2010

Summary

The PCAOB issued a proposed auditing standard on confirmation that would supersede PCAOB interim

standard AU section 330, The Confirmation Process. The proposed standard would expand the current

presumptive requirement to confirm accounts receivable to include (1) receivables that arise from credit

sales, loans or other transactions and (2) cash and other relationships with financial institutions. The

proposed standard also would require the auditor to perform confirmation procedures in response to

significant risks that relate to the relevant assertions that can be adequately addressed by confirmation

procedures. In addition, the proposed standard introduces certain limitations on the involvement of

internal auditors in the confirmation process and also would require expanded procedures to be

performed both in evaluating the evidence received from confirmation procedures and when agreeing

to management‘s requests not to confirm certain accounts, balances or other items. The PCAOB‘s

current standard-setting agenda calls for it to either issue a final standard or re-propose the standard

for public comment in 2012.

Other resources

• Comment Letter (SCORE No. BB1999)

37

PCAOB Release No. 2012-005, Report on the Progress of the Interim Inspection Program Related to Audits of Brokers and Dealers

Date issued: 20 August 2012

Summary

The report, which covers inspections performed from October 2011 through February 2012,

summarizes observations from the inspections of 10 registered public accounting firms covering 23

audits of brokers and dealers registered with the SEC. The PCAOB noted that deficiencies were

identified in all of the audits inspected and were observed in areas related to the customer protection

and net capital rules, audits of financial statements and auditor independence. Given that it reflects

results for only a small number of the total intended inspections, the report cautions that readers

should not use the results to generalize about all audits of brokers and dealers.

The interim inspection program is expected to extend through the end of 2013 and encompass

approximately 100 firms, covering portions of 170 audits. During this time, the Board will issue

additional progress reports on its observations and findings. Observations from the interim inspection

program will be used by the PCAOB to inform both the scope and elements of its permanent inspection

program, as well as any future standard-setting activities related to the audits of brokers and dealers,

assuming the SEC mandates that auditors comply with PCAOB standards in the future.

PCAOB Release No. 2012-003, Information for Audit Committees About the PCAOB Inspection Process

Date issued: 1 August 2012

Summary

The PCAOB issued a release to provide information to audit committees about its inspection process

and the meaning of reported inspection results. The purpose is to better equip audit committees to

discuss the results of inspections with their audit firms. The release highlights a number of questions

that the PCAOB believes could help audit committees gather useful information from their auditors to

assist in their oversight responsibilities, including, among others:

• Has the company‘s audit been selected for inspection and if so, has anything come to the firm‘s attention

suggesting the possibility that its audit opinion is not sufficiently supported or that its independence

or the fairness of the company‘s financial statements and disclosures are being questioned?

• Did the PCAOB identify deficiencies in other audits that involved auditing or accounting issues

similar to issues present in the company‘s audit? How does the firm plan to address comments

raised by the PCAOB and what changes is the firm making to policies and procedures to address

quality control issues?

• What topics may be included in Part II findings?

• What is the status of current inspection reports, including the audit firm‘s progress on quality

control remediation processes and whether the PCAOB has made a determination of its satisfaction

with those remediation efforts?

Other resources

• Technical Line, Auditor communications with audit committees (SCORE No. EE0907)

Other PCAOB

38 Third Quarter 2012 Standard Setter Update Financial reporting and accounting developments

Statement on Auditing Standards No. 126, The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern (Redrafted)

Date issued: 2 July 2012

Summary

This Statement on Auditing Standards (SAS) supersedes SAS No. 59, The Auditor’s Consideration of an

Entity’s Ability to Continue as a Going Concern, as amended (AICPA AU section 341 and AU-C section

570). The SAS represents the redrafting of SAS No. 59 to apply the ASB‘s clarity drafting conventions

so that it is consistent with the format of the other clarified SASs. The ASB had delayed convergence of

the SAS with International Standards on Auditing (ISA) 570, Going Concern, pending the FASB‘s

anticipated development of accounting guidance addressing going concern.

The SAS changes existing standards by requiring the auditor to obtain written representations from

management if conditions or events have been identified by the auditor that indicate there could be

substantial doubt about the entity‘s ability to continue as a going concern.

Effective date

This SAS is effective for audits of financial statements for periods ending on or after 15 December 2012.

Auditing Standards Board (ASB)

ASB final standards

39

Proposed Statement on Auditing Standards, Omnibus Statement on Auditing Standards — 2012

Date issued: 31 August 2012 — comment period ends 31 October 2012

Summary

This proposed SAS would amend SAS No. 122, Statements on Auditing Standards: Clarification and

Recodification, section 600, ―Special Considerations — Audits of Group Financial Statements (Including

the Work of Component Auditors),‖ and SAS No. 122, section 800, ― — Audits of

Financial Statements Prepared in Accordance With Special Purpose Frameworks.‖

Proposed amendments to SAS No. 122, section 600, would allow the auditor‘s report on the group

financial statements to refer to the audit of a component auditor when the component‘s financial

statements are prepared using a different financial reporting framework than that used for the group

financial statements, if certain criteria are met. The proposed amendments also would add or clarify

certain related requirements.

SAS No. 122, section 800 would be amended to add a basis of accounting described as ―a definite set

of logical, reasonable criteria that is applied to all material items appearing in financial statements‖ to

special purpose frameworks. As defined currently, ―special purpose framework‖ includes only a cash,

tax, regulatory or contractual basis of accounting. This amendment would make section 800

substantially consistent with the auditing standards before the issuance of SAS No. 122.

Effective date

The amendments to SAS No. 122, section 600, would be effective for audits of group financial

statements for periods ending on or after 15 December 2012.

The amendments to SAS No. 122, section 800, would be effective for audits of financial statements

for periods ending on or after 15 December 2012.

ASB exposure drafts

40 Third Quarter 2012 Standard Setter Update Financial reporting and accounting developments

Proposed Statements on Standards for Accounting and Review Services: Association

With Unaudited Financial Statements; Compilation of Financial Statements; and Compilation of Financial Statements — Special Considerations

Date issued: 29 June 2012 — comment period extended to 30 November 2012

Summary

In May 2010, the Accounting and Review Services Committee (ARSC) approved a project to revise all

existing compilation and review standards in the Codification of Statements on Standards for

Accounting and Review Services (AR sections of AICPA Professional Standards) substantially using the

drafting conventions adopted by the ASB in clarifying the auditing literature.

These proposed Statements on Standards for Accounting and Review Services (SSARSs) would

supersede all of the following:

• Paragraphs 1.05 through 1.06 and 2.01 through 2.64 of SSARS No. 19, Compilation and Review

Engagements (AICPA, Professional Standards, AR sec. 60 and 80)

• SSARS No. 13, Compilation of Specified Elements, Accounts, or Items of a Financial Statement, as

amended (AICPA Professional Standards, AR sec. 110)

• SSARS No. 3, Compilation Reports on Financial Statements Included in Certain Prescribed Forms, as

amended (AICPA Professional Standards, AR sec. 300)

• SSARS No. 6, Reporting on Personal Financial Statements Included in Written Personal Financial

Plans (AICPA Professional Standards, AR sec. 600)

Also, the proposed SSARS, Association With Unaudited Financial Statements, replaces the 2010

proposed SSARS, The Use of the Accountant’s Name in a Document or Communication Containing

Unaudited Financial Statements That Have Not Been Compiled or Reviewed.

The proposed SSARSs, which apply the ARSC‘s clarity drafting conventions and make other changes to

existing standards, would result in the following sections in the codified SSARSs:

• AR section 70, Association With Unaudited Financial Statements

• AR section 80, Compilation of Financial Statements (Revised)

• AR section 85, Compilation of Financial Statements — Special Considerations

Some of the more significant proposed changes include:

• Preparation of financial statements: AR section 80, Compilation of Financial Statements, would be

revised so that it applies only when the accountant is engaged to perform a compilation service.

That guidance currently applies whenever the accountant is engaged to report on compiled financial

statements or submits (defined as presenting to management financial statements that the

accountant has prepared) financial statements to a client or to third parties, with preparation being

an integral element. This proposal would change the nature of a compilation engagement from a

prepare and present (submission) service to a reporting service.

AICPA other

41

This change follows a June 2012 proposed revision by the Professional Ethics Executive Committee

(PEEC) to Interpretation No. 101-3, ―Performance of Nonattest Services,‖ that would clarify that

preparing financial statements is a nonattest service, regardless of whether the service was

performed as part of an attest (i.e., audit, review or compilation) engagement. Because preparation

cannot be both a nonattest and attest (i.e., compilation) service simultaneously, AR section 80

would be revised so that a compilation service would no longer include the preparation of financial

statements. The preparation, in whole or in part, would be a nonattest service.

• Requirement to Obtain a Signed Engagement Letter or Other Suitable Form of Written Communication:

This proposed change would require the engagement letter or other suitable form of written

communication to be signed by (1) the accountant or the accountant‘s firm and (2) management or,

if applicable, those charged with governance. AR section 80 currently requires that the accountant

document the understanding with management about the services to be performed for compilation

engagements through a written communication with management, but does not require either party

to sign the document.

• Emphasis-of-Matter and Other-Matter Paragraphs in the Accountant’s Compilation Report: This

proposed change would require the accountant to include an emphasis-of-matter or other-matter

paragraph in the accountant‘s compilation report for the following:

• tements prepared in accordance with a special purpose framework

• -period financial statements and the accountant‘s compilation report includes a

changed reference to a departure from the applicable financial reporting framework

• when management revises financial statements for a subsequently discovered fact that

became known to the accountant after the report release date and the accountant‘s compilation

report is different for the revised financial statements than for the original financial statements

• When the accountant draws attention to a matter appropriately presented or disclosed in the

financial statements because the matter, in the accountant‘s professional judgment, is of such

importance that it is fundamental to the user‘s understanding of the financial statements

The accountant would be required to include an other-matter paragraph in the accountant‘s

compilation report when the accountant considers it necessary to communicate a matter that is

not presented or disclosed in the financial statements that, in the accountant‘s professional

judgment, is relevant to the users‘ understanding of the compilation, the accountant‘s

responsibilities or the accountant‘s compilation report.

If the accountant expects to include an emphasis-of-matter or other-matter paragraph in the

accountant‘s compilation report, the accountant would have to communicate this expectation and

the proposed wording of the paragraph with management.

• Required Supplementary Information: The accountant would have to include an other-matter

paragraph in the accountant‘s compilation report on the financial statements to refer to the

required supplementary information.

42 Third Quarter 2012 Standard Setter Update Financial reporting and accounting developments

Effective date

The proposed SSARS Association With Unaudited Financial Statements would be effective for unaudited

financial statements with which the accountant is associated on or after 15 December 2014.

The proposed SSARSs Compilation of Financial Statements and Compilation of Financial Statements —

Special Considerations would be effective for compilations of financial statements for periods ending

on or after 15 December 2014.

Early implementation would be required for these proposed SSARSs if the accountant early implements

the proposed revised Interpretation No. 101-3, ―Performance of Nonattest Services,‖ under Rule 101,

Independence (AICPA Professional Standards, ET section 101 paragraph .05). Otherwise, early

implementation of the proposed SSARS Association With Unaudited Financial Statements would be

permitted, but early implementation of the proposed SSARSs Compilation of Financial Statements and

Compilation of Financial Statements — Special Considerations would not be permitted.

43

GASB Statement No. 68, Accounting and Financial Reporting for Pensions — an amendment of GASB Statement No. 27

Date issued: 2 August 2012 (approved by the Board on 25 June 2012)

Summary

Statement 68 replaces the requirements of Statement No. 27, Accounting for Pensions by State

and Local Governmental Employers, and Statement No. 50, Pension Disclosures, as they relate to

governments that provide pensions through pension plans administered as trusts or through similar

arrangements that meet certain criteria. Governments providing defined benefit pensions will be

required to recognize their long-term obligations for pension benefits as liabilities and to recognize

more pension expenses immediately. The Statement also requires revised and new disclosures, and

required supplementary information (RSI).

Statement 68 also requires cost-sharing employers to record liabilities and expenses equal to their

proportionate share of the collective net pension liability and expense for the cost-sharing plans.

Effective date

Statement 68 is effective for financial statements for fiscal years beginning after 15 June 2014, with

earlier application encouraged.

Other resources

• Technical Line, Most governments will soon record costs of their pension plans sooner

(SCORE No. BB2389)

GASB Statement No. 67, Financial Reporting for Pension Plans — an amendment of GASB Statement No. 25

Date issued: 2 August 2012 (approved by the Board on 25 June 2012)

Summary

This Statement replaces the requirements of Statement No. 25, Financial Reporting for Defined

Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, and Statement 50 for

pension plans that are administered through trusts or similar arrangements meeting certain criteria.

Statement 67 enhances note disclosures and RSI for both defined benefit and defined contribution

pension plans. Statement 67 also requires the presentation of new information about annual money-

weighted rates of return in the notes to the financial statements and in 10-year RSI schedules.

Effective date

Statement 67 is effective for financial statements for fiscal years beginning after 15 June 2013, with

earlier application encouraged.

Governmental Accounting Standards Board (GASB)

Final GASB guidance

44 Third Quarter 2012 Standard Setter Update Financial reporting and accounting developments

Accounting and Financial Reporting for Nonexchange Financial Guarantee Transactions

Date issued: 25 June 2012 — comment period ended 28 September 2012

Summary

The proposal requires a state and local government guarantor that offers a nonexchange financial

guarantee to another organization or government to recognize a liability on its financial statements

when it is ―more likely than not‖ that the guarantor will actually make a payment to the obligation

holders under the agreement. Additionally, the proposed Statement would require the following:

• A government guarantor would consider qualitative factors when determining whether it is more

likely than not that it will have to make a payment on its guarantee.

• An issuer government that is required to repay a guarantor would have to continue to report a

liability unless legally released. When a government is released from the obligation, it would

recognize revenue.

• A government guarantor and issuer would disclose information about the amounts and nature of

nonexchange financial guarantees.

Effective date

The amendments would be effective for periods beginning after 15 June 2013. Early application

would be encouraged. Disclosures related to cumulative amounts paid or received under a financial

guarantee could be applied prospectively, and other provisions would be required to be applied

retroactively.

Government Combinations and Disposals of Government Operations

Date issued: 7 March 2012 — comment period ended 15 June 2012

Summary

This proposed Statement would provide state and local governments with standards for financial

reporting on government combinations (mergers, acquisitions and transfers of operations) and disposals

(sales and transfers) of government operations. It would require state and local governments to:

• Identify whether a government combination is a government merger, government acquisition or

transfer of operations

• Use carrying values to measure the assets and liabilities combined in a government merger or

transfer of operations

• Measure acquired assets and liabilities based on their acquisition values in a government acquisition

The proposed Statement also would provide guidance for government operations that have been

transferred or sold and would require certain disclosures.

Effective date

The proposed Statement would be effective for periods beginning after 15 December 2013 and would

be applied on a prospective basis. Earlier application would be encouraged.

GASB exposure drafts

45

Preliminary Views, Economic Condition Reporting: Financial Projections

Date issued: 29 November 2011 — comment period ended 16 March 2012

Summary

This Preliminary Views document proposes that governments should present five-year projections of

cash inflows, cash outflows and financial obligations that would accompany their financial statements

as required supplementary information. The required information would include explanations of the

known causes of fluctuations and a discussion of governments‘ dependencies on other governments to

provide their services. The objective is to better enable taxpayers, bond holders and other interested

parties to assess a government‘s financial health.

The GASB proposed that financial projections should be based on current policy, informed by historical

information and adjusted for known events and conditions that will affect the government‘s finances

during the projection periods.

Preliminary Views, Recognition of Elements of Financial Statements and Measurement Approaches

Date issued: 28 June 2011 — comment period ended 30 September 2011

Summary

This Preliminary Views document seeks comment on the Board‘s early views on how and when an item

should be reported (recognition) on state and local government financial statements and how the amount

of the item reported on those statements should be determined (measurement approach).

Recognition concepts encompass two aspects of financial statements — measurement focus and basis

of accounting. The measurement focus of a specific financial statement determines what items should

be reported as assets, liabilities and other elements of that financial statement. The related basis of

accounting determines when those items should be reported.

The Preliminary Views proposes a recognition framework for financial statements prepared using

either the ―economic resources‖ measurement focus or the ―near-term financial resources‖

measurement focus. The latter would, from a conceptual standpoint, replace the existing ―current

financial resources‖ measurement focus that is used in governmental fund financial reporting. The

proposed recognition framework also includes proposed concepts related to recognition of deferred

outflows of resources and deferred inflows of resources that would help the Board determine when

those elements should be used in the standard-setting process.

A measurement approach is a broad concept focusing on whether an asset or liability presented in a

financial statement should be (1) reported at an amount that reflects the value when the asset was

acquired or the liability incurred or (2) re-measured and reported at an amount that reflects the value

at the date of the financial statements. The Preliminary Views identifies characteristics of assets or

liabilities that would indicate from a conceptual viewpoint when each measurement approach would be

appropriately applied in future standard setting.

Other GASB

46 Third Quarter 2012 Standard Setter Update Financial reporting and accounting developments

Number Title Effective date

ASU 2012-07 Entertainment—Films (Topic 926),

Accounting for Fair Value

Information That Arises after the

Measurement Date and Its Inclusion

in the Impairment Analysis of

Unamortized Film Costs

SEC filers: effective for impairment assessments performed on or after 15

December 2012.

Other entities: effective for impairment assessments performed on or after

15 December 2013.

The amendments should be applied prospectively. In addition, earlier

application is permitted, including for impairment assessments performed as

of a date before 24 October 2012, if, for SEC filers, the entity‘s financial

statements for the most recent annual or interim period have not yet been

issued or, for all other entities, have not yet been made available for

issuance.

ASU 2012-06 Business Combinations (Topic 805),

Subsequent Accounting for an

Indemnification Asset Recognized at

the Acquisition Date as a Result of a

Government-Assisted Acquisition of

a Financial Institution

Effective for fiscal years, and interim periods within those years, beginning

on or after 15 December 2012.

ASU 2012-05 Statement of Cash Flows (Topic

230), Not-for-Profit Entities:

Classification of the Sale Proceeds of

Donated Financial Assets in the

Statement of Cash Flows

Effective for fiscal years, and interim periods within those years, beginning

after 15 June 2013.

ASU 2012-04 Technical Corrections and

Improvements

Effective upon issuance for amendments that do not have transition

guidance.

Amendments that are subject to transition guidance:

Public entities: effective for fiscal periods beginning after 15 December

2012.

Nonpublic entities: effective for fiscal periods beginning after 15 December

2013.

ASU 2012-02 Intangibles — Goodwill and Other

(Topic 350), Testing Indefinite-Lived

Intangible Assets for Impairment

Effective for annual and interim impairment tests performed for fiscal years

beginning after 15 September 2012.

ASU 2012-01 Health Care Entities (Topic 954),

Continuing Care Retirement

Communities — Refundable

Advance Fees

Public entities (including conduit bond obligors): effective for fiscal periods

beginning after 15 December 2012.

Nonpublic entities: effective for fiscal periods beginning after 15 December

2013.

ASU 2011-12 Comprehensive Income (Topic 220),

Deferral of the Effective Date for

Amendments to the Presentation of

Reclassifications of Items Out of

Accumulated Other Comprehensive

Income in Accounting Standards

Update No. 2011-05

Public entities: effective for fiscal years, and interim periods within those

years, beginning after 15 December 2011.

Nonpublic entities: effective for fiscal years ending after 15 December 2012,

and interim and annual periods thereafter.

Effective date matrices

Effective date matrix — final FASB pronouncements

47

Number Title Effective date

ASU 2011-11 Balance Sheet (Topic 210),

Disclosures about Offsetting Assets

and Liabilities

Effective for annual reporting periods beginning on or after 1 January 2013,

and interim periods within those annual periods.

ASU 2011-10 Property, Plant, and Equipment

(Topic 360), Derecognition of in

Substance Real Estate — a Scope

Clarification

Public entities: effective for fiscal years, and interim periods within those

years, beginning on or after 15 June 2012.

Nonpublic entities: effective for fiscal years ending after 15 December 2013,

and interim and annual periods thereafter.

ASU 2011-09 Compensation — Retirement

Benefits — Multiemployer Plans

(Subtopic 715-80), Disclosures

about an Employer‘s Participation in

a Multiemployer Plan

Public entities: effective for annual periods for fiscal years ending after

15 December 2011.

Nonpublic entities: effective for annual periods for fiscal years ending after

15 December 2012.

ASU 2011-08 Intangibles — Goodwill and Other

(Topic 350), Testing Goodwill

for Impairment

Effective for annual and interim goodwill impairment tests performed for

fiscal years beginning after 15 December 2011.

ASU 2011-07 Health Care Entities (Topic 954),

Presentation and Disclosure of

Patient Service Revenue, Provision

for Bad Debts, and the Allowance for

Doubtful Accounts for Certain Health

Care Entities

Public entities: effective for fiscal years and interim periods within those

fiscal years beginning after 15 December 2011.

Nonpublic entities: effective for the first annual period ending after

15 December 2012, and interim and annual periods thereafter.

ASU 2011-06 Other Expenses (Topic 720), Fees

Paid to the Federal Government by

Health Insurers

Effective for calendar years beginning after 31 December 2013, when the

fee initially becomes effective.

ASU 2011-05 Comprehensive Income (Topic 220),

Presentation of Comprehensive

Income

Public entities: effective for fiscal years, and interim periods within those

years, beginning after 15 December 2011.

Nonpublic entities: effective for fiscal years ending after 15 December 2012,

and interim and annual periods thereafter.

ASU 2011-04 Fair Value Measurement

(Topic 820), Amendments to

Achieve Common Fair Value

Measurement and Disclosure

Requirements in U.S. GAAP

and IFRSs

Public entities: effective for interim and annual periods beginning after

15 December 2011. Early adoption is not permitted.

Nonpublic entities: effective for annual periods beginning after 15 December

2011. Nonpublic entities may elect to apply the amendments early, but no

earlier than interim periods beginning after 15 December 2011.

ASU 2011-03 Transfers and Servicing (Topic 860),

Reconsideration of Effective Control

for Repurchase Agreements

Effective for the first interim or annual period beginning on or after

15 December 2011. Early adoption is not permitted.

48 Third Quarter 2012 Standard Setter Update Financial reporting and accounting developments

Number Title Effective date

ASU 2011-02 Receivables (Topic 310),

A Creditor‘s Determination of

Whether a Restructuring Is a

Troubled Debt Restructuring

Public entities: effective for the first interim or annual period beginning on or

after 15 June 2011, and should be applied retrospectively to the beginning

of the annual period of adoption. The disclosures that were deferred by

ASU 2011-01 are effective for interim and annual periods beginning on or

after 15 June 2011.

Nonpublic entities: effective for annual periods ending on or after

15 December 2012, including interim periods within those annual periods.

ASU 2011-01 Receivables (Topic 310), Deferral of

the Effective Date of Disclosures

about Troubled Debt Restructurings

in Update No. 2010-20

Effective upon issuance (19 January 2011).

ASU 2010-29 Business Combinations (Topic 805),

Disclosure of Supplementary

Pro Forma Information for Business

Combinations

Effective for business combinations for which the acquisition date is on or

after the beginning of the first annual reporting period beginning on or after

15 December 2010.

ASU 2010-28 Intangibles — Goodwill and Other

(Topic 350), When to Perform Step 2

of the Goodwill Impairment Test for

Reporting Units with Zero or

Negative Carrying Amounts

Public entities: effective for fiscal years, and interim periods within those

years, beginning after 15 December 2010. Early adoption is not permitted.

Nonpublic entities: effective for fiscal years, and interim periods within those

years, beginning after 15 December 2011. Nonpublic entities may early

adopt the amendments using the effective date for public entities.

ASU 2010-27 Other Expenses (Topic 720), Fees

Paid to the Federal Government by

Pharmaceutical Manufacturers

Effective for calendar years beginning after 31 December 2010, when the

fee initially becomes effective.

ASU 2010-26 Financial Services — Insurance

(Topic 944), Accounting for Costs

Associated with Acquiring or

Renewing Insurance Contracts

Effective for fiscal years and interim periods within those fiscal years

beginning after 15 December 2011.

ASU 2010-24 Health Care Entities (Topic 954),

Presentation of Insurance Claims

and Related Insurance Recoveries

Effective for fiscal years, and interim periods within those years, beginning

after 15 December 2010.

ASU 2010-23 Health Care Entities (Topic 954),

Measuring Charity Care for

Disclosure

Effective for fiscal years beginning after 15 December 2010.

ASU 2010-20 Receivables (Topic 310), Disclosures

about the Credit Quality of Financing

Receivables and the Allowance for

Credit Losses

Public entities: for the disclosures as of the end of a reporting period,

effective for interim and annual reporting periods ending on or after

15 December 2010. For disclosures about activity that occurs during a

reporting period, effective for interim and annual reporting periods

beginning on or after 15 December 2010.

Nonpublic entities: the disclosures are effective for annual reporting periods

ending on or after 15 December 2011.

ASU 2010-17 Revenue Recognition — Milestone

Method (Topic 605), Milestone

Method of Revenue Recognition

Effective for milestones achieved in fiscal years, and interim periods within

those fiscal years, beginning on or after 15 June 2010.

49

Number Title Effective date

ASU 2010-16 Entertainment — Casinos

(Topic 924), Accruals for Casino

Jackpot Liabilities

Effective for fiscal years, and interim periods within those fiscal years,

beginning on or after 15 December 2010.

ASU 2010-15 Financial Services — Insurance

(Topic 944), How Investments Held

through Separate Accounts Affect

an Insurer‘s Consolidation Analysis

of Those Investments

Effective for fiscal years, and interim periods within those fiscal years,

beginning after 15 December 2010.

ASU 2010-13 Compensation — Stock

Compensation (Topic 718), Effect of

Denominating the Exercise Price of a

Share-Based Payment Award in the

Currency of the Market in Which the

Underlying Equity Security Trades

Effective for fiscal years, and interim periods within those fiscal years,

beginning on or after 15 December 2010.

ASU 2010-06 Fair Value Measurements and

Disclosures (Topic 820), Improving

Disclosures about Fair Value

Measurements

Effective for interim and annual reporting periods beginning after

15 December 2009, except for the disclosures about purchases, sales,

issuances and settlements in the rollforward of activity in Level 3 fair value

measurements. Those disclosures are effective for fiscal years beginning

after 15 December 2010, and for interim periods within those fiscal years.

ASU 2009-14 Software (Topic 985), Certain

Revenue Arrangements That Include

Software Elements

Effective for revenue arrangements entered into or materially modified in

fiscal years beginning on or after 15 June 2010.

ASU 2009-13 Revenue Recognition (Topic 605),

Multiple-Deliverable Revenue

Arrangements

Effective for revenue arrangements entered into or materially modified in

fiscal years beginning on or after 15 June 2010.

50

Title Effective date

Conflict Minerals Issuers are required to file Form SD on a calendar-year basis, with an issuer‘s

initial report to be filed by 31 May 2014 to cover calendar-year 2013. During a

transition period of two years, or four years for smaller reporting companies, an

issuer may describe its products as ―DRC conflict undeterminable‖ if it is unable

to determine whether they are conflict-free.

Disclosure of Payments by Resource Extraction Issuers Fiscal years ending after 30 September 2013. However, an issuer may provide a

partial-year report if its fiscal year began before 30 September 2013. Therefore,

these issuers will not be required to report payments made before 1 October 2013.

Listing Standards for Compensation Committees Exchanges must propose their listing standards no later than 90 days after the

rule‘s 27 July 2012 effective date. The SEC has one year from the effective date

to approve the listing standards. The new proxy disclosure requirements go into

effect for shareholder meetings on or after 1 January 2013 at which directors

are elected.

Net Worth Standard for Accredited Investors 27 February 2012; however, Section 413 of the Dodd-Frank Act was effective

21 July 2010.

Mine Safety Disclosure 27 January 2012; however, Section 1503 of the Dodd-Frank Act was effective

20 August 2010.

Facilitating Shareholder Director Nominations 20 September 2011, except for Rule 14a-11, which was vacated by the

US Court of Appeals for the District of Columbia.

Technical Amendments to Commission Rules and Forms

Related to the FASB‘s Accounting Standards Codification

12 August 2011

Security Ratings 2 September 2011; however, companies that would have been eligible to use

short-form registration under the old rules will be permitted to continue to do so

for three years.

Implementation of the Whistleblower Provisions of Section

21F of the Securities Exchange Act of 1934

12 August 2011; however, Section 21F of the Exchange Act was effective

21 July 2010.

Shareholder Approval of Executive Compensation and

Golden Parachute Compensation

4 April 2011; however, the rule requires both the initial ―say-on-pay‖ vote and

the initial frequency vote at the first annual meeting occurring on or after

21 January 2011. Smaller reporting companies are exempt from the ―say-on-

pay‖ and frequency votes for two years.

Issuers must hold shareholder votes on golden parachutes and make the related

disclosures in proxies for mergers or similar transactions filed on or after

25 April 2011.

Issuer Review of Assets in Offerings of Asset-Backed

Securities

28 March 2011. Registered ABS offerings after 31 December 2011.

Disclosure for Asset-Backed Securities Required by

Section 943 of the Dodd-Frank Wall Street Reform and

Consumer Protection Act

28 March 2011, but the disclosure must cover an initial three-year look-back

period ending 31 December 2011 and be updated on a quarterly basis

thereafter. While the disclosure also applies to issuers of municipal ABS, they

have special disclosure provisions and a three-year delayed compliance date

(i.e., initial disclosure will cover the three-year look-back period ending

31 December 2014).

Delegation of Authority to the Chief Accountant 18 January 2011

Effective date matrix — final SEC pronouncements and interpretive releases

51 Third Quarter 2012 Standard Setter Update Financial reporting and accounting developments

Title Effective date

Auditing Standard No. 16, Communications with Audit

Committees

Effective for audits of financial statements for fiscal years beginning on or after

15 December 2012 (pending approval by the SEC).

Rule 7102, Allocation of Broker-Dealer Accounting

Support Fee

Effective for the 2011 funding cycle.

Rule 7101, Allocation of Issuer Accounting Support Fee Amendments effective for the 2012 funding cycle.

Auditing Standard No. 8, Audit Risk

Auditing Standard No. 9, Audit Planning

Auditing Standard No. 10, Supervision of the Audit

Engagement

Auditing Standard No. 11, Consideration of Materiality in

Planning and Performing an Audit

Auditing Standard No. 12, Identifying and Assessing Risks

of Material Misstatement

Auditing Standard No. 13, The Auditor‘s Responses to the

Risks of Material Misstatement

Auditing Standard No. 14, Evaluating Audit Results

Auditing Standard No. 15, Audit Evidence

Effective for audits of financial statements for fiscal years beginning on or after

15 December 2010.

Effective date matrix — final PCAOB pronouncements and rules

52

Title Effective date

SAS No. 126, The Auditor‘s Consideration of an Entity‘s

Ability to Continue as a Going Concern (Redrafted)

Effective for audits of financial statements for periods ending on or after

15 December 2012.

SAS No. 125, Alert That Restricts the Use of the Auditor‘s

Written Communication

Effective for the auditor‘s written communications related to audits of financial

statements for periods ending on or after 15 December 2012. For all other

engagements conducted in accordance with GAAS, this SAS is effective for the

auditor‘s written communications issued on or after 15 December 2012.

SAS No. 124, Financial Statements Prepared in

Accordance With a Financial Reporting Framework

Generally Accepted in Another Country

Effective for audits of financial statements for periods ending on or after

15 December 2012.

SAS No. 123, Omnibus Statement on Auditing Standards

2011

Effective for audits of financial statements for periods ending on or after

15 December 2012.

SAS No. 122, Statements on Auditing Standards:

Clarification and Recodification

Effective for audits of financial statements for periods ending on or after

15 December 2012.

SAS No. 121, Revised Applicability of Statement on

Auditing Standards No. 100, Interim Financial Information

Effective for interim reviews of interim financial information of non-issuer entities

for periods beginning after 15 December 2011. Early application is permitted.

SSARS No. 20, Revised Applicability of Statements on

Standards for Accounting and Review Services

Effective for reviews of financial statements of non-issuer entities for periods

beginning after 15 December 2011. Early application is permitted.

Effective date matrix — final ASB standards

53 Third Quarter 2012 Standard Setter Update Financial reporting and accounting developments

Title Effective date

Statement 68, Accounting and Financial Reporting for

Pensions — an amendment of GASB Statement No. 27

Effective for financial statements for fiscal years beginning after 15 June 2014.

Earlier application is encouraged.

Statement 67, Financial Reporting for Pension Plans —

an amendment of GASB Statement No. 25

Effective for financial statements for fiscal years beginning after 15 June 2013.

Earlier application is encouraged.

Statement 66, Technical Corrections — 2012 (an

amendment of GASB Statements No. 10 and No. 62)

Effective for financial statements for periods beginning after 15 December

2012. Earlier application is encouraged.

Statement 65, Items Previously Reported as Assets

and Liabilities

Effective for financial statements for periods beginning after 15 December

2012. Earlier application is encouraged.

Statement 64, Derivative Instruments: Application of

Hedge Accounting Termination Provisions, an amendment

of GASB Statement No. 53

Effective for financial statements for periods beginning after 15 June 2011.

Earlier application is encouraged.

Statement 63, Financial Reporting of Deferred Outflows

of Resources, Deferred Inflows of Resources, and

Net Position

Effective for financial statements for periods beginning after 15 December

2011. Earlier application is encouraged.

Statement 62, Codification of Accounting and Financial

Reporting Guidance Contained in Pre-November 30, 1989

FASB and AICPA Pronouncements

Effective for financial statements for periods beginning after 15 December 2011.

Earlier application is encouraged.

Statement 61, The Financial Reporting Entity: Omnibus,

an amendment of GASB Statements No. 14 and No. 34

Effective for financial statements for periods beginning after 15 June 2012.

Earlier application is encouraged.

Statement 60, Accounting and Financial Reporting for

Service Concession Arrangements

Effective for financial statements for periods beginning after 15 December

2011. Earlier application is encouraged.

Statement 59, Financial Instruments Omnibus Effective for financial statements for periods beginning after 15 June 2010.

Earlier application is encouraged.

Statement 57, OPEB Measurements by Agent Employers

and Agent Multiple-Employer Plans

The provisions of Statement 57 related to the use and reporting of the

alternative measurement method are effective immediately (issued

31 December 2009). The provisions related to the frequency and timing of

measurements are effective for actuarial valuations first used to report funded

status information in OPEB plan financial statements for periods beginning after

15 June 2011. Earlier application is encouraged.

Statement 54, Fund Balance Reporting and Governmental

Fund Type Definitions

Effective for financial statements for periods beginning after 15 June 2010.

Earlier application is encouraged.

Effective date matrix — final GASB pronouncements

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SCORE No. BB2422

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