roundup yir final - ias pluspreface the year 2002 was an active one for accounting standards-setters...

Accounting RoundupThe Year 2002 In Review

Preface

The year 2002 was an active one for accounting standards-setters andaccounting regulators, with the issuance of a relatively large number of finaland proposed SFASs, SOPs, IFRSs, EITF consensuses, and SEC rules.* EvenCongress left its imprint on accounting practice and corporate governancethrough its passage of the Sarbanes-Oxley Act of 2002.

This publication, Accounting Roundup: The Year 2002 in Review, presentsarticles that briefly describe key regulatory and professional developments inthe field of accounting that may affect the preparation of annual and interimfinancial statements for periods ending in 2002 and 2003. The articlesincluded here were drawn from issues of the Accounting Roundup newsletterdated January 11 through December 9, 2002, and have been updated whereappropriate. These articles also provide links to locations where additionalinformation can be found on each topic.

Readers seeking additional information about these topics or other activitiesof key standards-setting organizations should review the information referredto in the hyperlinks. Further information can be found on the websites of theorganizations discussed in this publication, including the FASB, GASB, SEC,AICPA, and IASB. Readers should also consult upcoming issues ofAccounting Roundup for reports of new developments.

*See the appendix for an explanation of abbreviations used in this publication.

Accounting Roundup: The Year 2002 in Review

i

The purpose of this publication is to briefly describe key regulatory and professional developments that have recently occurred in thefield of accounting and to provide links to locations where additional information can be found on each topic. Readers seekingadditional information about a topic should review the information referred to in the hyperlinks and not rely solely on thedescriptions included in this communication.

Deloitte & Touche LLP is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or otherprofessional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as abasis for any decision or action that may affect your business. Before making any decision or taking any action that may affect yourbusiness, you should consult a qualified professional advisor.

Deloitte & Touche LLP shall not be responsible for any loss sustained by any person who relies on this publication.

Table of Contents

ii

Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i

FASB Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Statements of Financial Accounting Standards Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Interpretation Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

FASB Exposure Drafts Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

EITF Issues on Which Consensuses Were Reached . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Other FASB Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

GASB Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

GASB Statement Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

GASB Exposure Draft Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

SEC Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

SEC Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

Complying With the Sarbanes-Oxley Act of 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14

SEC Staff Legal Bulletin 14A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21

AICPA Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22

AICPA to Curtail Certain Standards-Setting Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22

Exposure Drafts of AcSEC SOPs Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22

Other AcSEC Projects in Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24

TPAs Issued by the AICPA Staff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24

Other AICPA Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25

International Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28

EU Requires Listed Companies to Use IASB Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28

IASB and FASB Move Closer to Standards Convergence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28

Final IFRSs Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29

Exposure Drafts of IFRSs Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29

Other IASB Projects in Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33

Financial Reporting on the Internet—Responsibilities of Directors and Management . . . . . . . . . . . . . . . . . . .34

Appendix: Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35

FASB Developments

SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendmentof FASB Statement No. 13, and Technical Corrections

On April 30, 2002, the FASB issued SFAS 145, which:

• Rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishmentof Debt, an amendment of APB Opinion No. 30, and SFAS No. 64,Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements,which amended SFAS 4, as these two standards required that allgains and losses from the extinguishment of debt be aggregated and,if material, classified as an extraordinary item. Consequently, suchgains and losses will now be classified as extraordinary only if theymeet the criteria for extraordinary treatment set forth in APB Opinion30, Reporting the Results of Operations—Reporting the Effects ofDisposal of a Segment of a Business, and Extraordinary, Unusual andInfrequently Occurring Events and Transactions.

• Rescinds SFAS No. 44, Accounting for Intangible Assets of MotorCarriers, an amendment of Chapter 5 of ARB No. 43 and aninterpretation of APB Opinions 17 and 30, because the discrete event towhich that Statement relates is no longer relevant.

• Amends SFAS No. 13, Accounting for Leases, to require that certainlease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as suchtransactions.

• Makes certain technical corrections, which the FASB deemed to benonsubstantive, to a number of existing accounting pronouncements.

The provisions of SFAS 145 related to the rescission of SFAS 4 and 64 areeffective for fiscal years beginning after May 15, 2002. The provisions relatedto the amendment of SFAS 13 are effective for transactions occurring afterMay 15, 2002. All other provisions of SFAS 145 are effective for financialstatements issued on or after May 15, 2002. Early application of all provisionsof SFAS 145 is encouraged.

Statements of Financial Accounting Standards Issued

1

FASB Developments

Statements of FinancialAccounting Standards Issued

Interpretation Issued

FASB Exposure DraftsOutstanding

EITF Issues on WhichConsensuses Were Reached

Other FASB Developments

GASB Developments

SEC Developments

AICPA Developments

InternationalDevelopments

Appendix

Selected FASB Links

FASB Homepage: http://www.fasb.org

Action Alert:http://www.fasb.org/action

EITF: http://www.fasb.org/eitf

FASB Publications: http://www.fasb.org/public

http://www.fasb.org

http://www.fasb.org/action

http://www.fasb.org/eitf

http://www.fasb.org/public

2

SFAS No. 146, Accounting for Costs Associated with Exit or DisposalActivities

On July 30, 2002, the FASB issued SFAS 146, which requires costs associatedwith exit or disposal activities to be recognized when the costs are incurred,rather than at a date of commitment to an exit or disposal plan. The FASBbases the accrual of an exit or disposal cost on the existence of a liability thatconstitutes an "obligation" as defined in FASB Concept Statement No. 6,Elements of Financial Statements, which differs from the concept of anexpected cost that was the underpinning of EITF Issue No. 94-3, LiabilityRecognition for Certain Employee Termination Benefits and Other Costs to Exit anActivity (including Certain Costs Incurred in a Restructuring); therefore, SFAS146 nullifies Issue 94-3. The provisions of SFAS 146 are effective for disposalactivities initiated after December 31, 2002, with early application encouraged.

SFAS No. 147, Acquisitions of Certain Financial Institutions

On October 1, 2002, the FASB issued SFAS 147, which applies to allacquisitions of a financial institution except those between two or moremutual enterprises, which is being addressed in a separate project.

SFAS 147 supersedes the specialized accounting guidance in paragraph 5 ofSFAS No. 72, Accounting for Certain Acquisitions of Banking or ThriftInstitutions; therefore, if certain criteria in SFAS 147 are met, the amount ofthe unidentifiable intangible asset will be reclassified to goodwill uponadoption of SFAS 147. Restatement of previously issued financial statementswill be required. Those transition provisions are effective as of October 1,2002; however, early application is permitted.

SFAS 147 also amends the scope of SFAS No. 144, Accounting for theImpairment or Disposal of Long-Lived Assets, to include long-term customer-relationship intangible assets such as depositor- and borrower-relationshipintangible assets and credit cardholder intangible assets.


Interpretation on Accounting Guidance to Improve Disclosure Requirements

for Guarantees

On November 25, 2002, the FASB issued Interpretation No. 45, Guarantor'sAccounting and Disclosure Requirements for Guarantees, Including IndirectGuarantees of Indebtedness of Others, which elaborates on the disclosures tobe made by a guarantor about its obligations under certain guarantees issued.It also clarifies that a guarantor is required to recognize, at the inception of aguarantee, a liability for the fair value of the obligation undertaken in issuingthe guarantee. The Interpretation expands on the accounting guidance ofSFAS No. 5, Accounting for Contingencies, SFAS No. 57, Related PartyDisclosures, and SFAS No. 107, Disclosures about Fair Value of FinancialInstruments. It also incorporates without change the provisions of FASB

FASB Developments






GASB Developments

SEC Developments

AICPA Developments


Appendix

Selected FASB Links





http://www.fasb.org




3

Interpretation No. 34, Disclosure of Indirect Guarantees of Indebtedness ofOthers, which is being superseded.

The initial recognition and measurement provisions of Interpretation 45apply on a prospective basis to guarantees issued or modified after December31, 2002, regardless of the guarantor's fiscal year-end. The disclosures areeffective for financial statements of interim or annual periods ending afterDecember 15, 2002.

FASB Exposure Drafts Outstanding

Accounting for Stock Options: Amended Transition and Disclosure

Provisions

On October 4, 2002, the FASB issued an exposure draft, Accounting for Stock-Based Compensation—Transition and Disclosure, that would amend SFAS No.123, Accounting for Stock-Based Compensation.

The amendment, which is expected to be issued by the end of 2002, would beeffective immediately upon issuance. The proposed disclosures to be providedin annual financial statements would be required for fiscal years ending afterDecember 15, 2002. The proposed disclosures to be provided in interimfinancial information would be required as of the first interim periodbeginning after December 15, 2002, with earlier application encouraged.

The exposure draft can be obtained on the FASB's website athttp://www.fasb.org/draft. The comment period has ended. A projectsummary prepared by the FASB staff is available on the FASB's website athttp://www.fasb.org/project/amend_123.shtml.

Consolidation of Certain Special-Purpose Entities

On June 28, 2002, the FASB issued an exposure draft of a proposedInterpretation, Consolidation of Certain Special-Purpose Entities—aninterpretation of ARB No. 51. The objective of the proposed Interpretation is toprovide guidance for identifying a controlling financial interest established bymeans other than voting interests. It requires consolidation of an SPE by anenterprise that holds such a controlling financial interest (the primarybeneficiary). It is intended to require consolidation of SPEs only if those SPEsdo not effectively disperse the risks and benefits among the various partiesinvolved.

The effective date for newly formed SPEs will be upon issuance of the finalInterpretation. For existing SPEs, the effective date is expected to be periodsbeginning after June 15, 2003. The final Interpretation is expected to beissued by the end of 2002.

The exposure draft can be obtained on the FASB's website athttp://www.fasb.org/draft/ed_prop_interp_spe.pdf. The comment period hasended. A project summary prepared by the FASB staff that includes

FASB Developments






GASB Developments

SEC Developments

AICPA Developments


Appendix

Selected FASB Links





http://www.fasb.org/draft

http://www.fasb.org/project/amend_123.shtml

http://www.fasb.org/draft/ed_prop_interp_spe.pdf

http://www.fasb.org




4

discussion of the redeliberations of the exposure draft and comment lettersreceived is also available on the FASB's website at http://www.fasb.org/project/spe.shtml.

Amendment of SFAS 133

On May 1, 2002, the FASB issued an exposure draft of a proposed SFAS,Amendment of Statement 133 on Derivative Instruments and Hedging Activities,(1) to clarify the definition of a derivative and various decisions made as partof the FASB's Derivatives Implementation Group process and (2) to resolvecertain issues raised in connection with Statement 133 Implementation IssueNo. D1, Application of Statement 133 to Beneficial Interests in SecuritizedFinancial Assets. Specifically, the proposed Statement would clarify thecircumstances under which a financial contract (whether option based ornonoption based) with an initial net investment would meet the characteristicof a derivative under paragraph 6(b) of SFAS 133.

The exposure draft can be obtained at http://www.fasb.org/draft/ed_amend_st133.pdf. The comment period has ended. The Board continues toredeliberate various aspects of the exposure draft and comment lettersreceived. It expects to issue a standard in the first quarter of 2003. A projectsummary prepared by the FASB staff, which includes discussions on theredeliberations, is available on the FASB's website at http://www.fasb.org/project/amend_st_133.shtml.

Note: Conclusions of the FASB are subject to change at future Board meetings andgenerally do not affect current accounting requirements until an official position(Statement or Interpretation) is issued. Official positions of the FASB aredetermined only after extensive deliberation and due process, including a formalvote by written ballot to issue a Statement or Interpretation.

EITF Issues on Which Consensuses Were Reached

Issue No. 87-24, Allocation of Interest to Discontinued Operations

SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets,supersedes certain provisions of APB Opinion No. 30, Reporting the Results ofOperations—Reporting the Effects of Disposal of a Segment of a Business, andExtraordinary, Unusual and Infrequently Occurring Events and Transactions, thatwere originally interpreted by the Task Force in Issue 87-24.

This Issue concerns the application of certain provisions of SFAS 144 todiscontinued operations; specifically, whether the consensus in Issue 87-24should be modified to allow for the allocation to discontinued operations ofinterest on debt that will be assumed by the buyer.

At the June 2002 meeting, the Task Force reached a consensus to modify this Issue.

FASB Developments






GASB Developments

SEC Developments

AICPA Developments


Appendix

Selected FASB Links





http://www.fasb.org/project/spe.shtml

http://www.fasb.org/draft/ed_amend_st133.pdf

http://www.fasb.org/project/amend_st_133.shtml

http://www.fasb.org




5

Issue No. 90-19, Convertible Bonds with Issuer Option to Settle for Cashupon Conversion

Under the original consensus reached in EITF Issue 90-19, Instrument C, asdefined in the Issue, would be accounted for as if it were an indexed debtinstrument by adjusting the carrying amount of the instrument in eachreporting period to reflect the current stock price, but not below the accretedvalue of the instrument. Changes in the index value are recorded in earnings.The status section of EITF Issue 90-19 reflects the FASB staff's conclusionthat SFAS No. 133, Accounting for Derivative Instruments and HedgingActivities, does not affect the accounting for Instrument C. The issue iswhether the consensus guidance for Instrument C in EITF Issue 90-19 isinconsistent with subsequent developments in the accounting literature, inparticular, SFAS No. 123, Accounting for Stock-Based Compensation, and EITFIssue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, andPotentially Settled in, a Company's Own Stock.

The Task Force reached a consensus on this Issue at the January 2002 meeting.

Issue No. 95-23, The Treatment of Certain Site Restoration/EnvironmentalExit Costs When Testing a Long-Lived Asset for Impairment

After SFAS No. 143, Accounting for Asset Retirement Obligations, and SFAS 144were issued, the FASB staff recommended certain conforming changes toIssue 95-23.

At the June 2002 meeting, the Task Force reached a consensus that SFAS 143provides guidance consistent with the first consensus in Issue 95-23. Accordingly,that consensus was nullified. The Task Force also reached a consensus to make anumber of other conforming changes to Issue 95-23 for consistency with thelanguage and requirements of SFAS 143 and SFAS 144.

Issue No. 00-19, Accounting for Derivative Instruments Indexed to, andPotentially Settled in, a Company's Own Stock

Contracts that are indexed to a company's own stock are accounted for inaccordance with the consensus previously reached in Issue 00-19. The TaskForce was requested to clarify what disclosure requirements should be appliedto contracts that are within the scope of this Issue.

The Task Force reached a consensus on disclosure requirements for contracts withinthe scope of Issue 00-19 at the March 2002 meeting.

Issue No. 00-21, Accounting for Revenue Arrangements with MultipleDeliverables

This Issue addresses certain aspects of the accounting by a vendor forarrangements under which the vendor will perform multiple revenue-generating activities.

The Task Force reached a consensus on this Issue at the November 2002 meeting.

FASB Developments






GASB Developments

SEC Developments

AICPA Developments


Appendix

Selected FASB Links





http://www.fasb.org




6

Issue No. 00-23, Issues Related to the Accounting for Stock Compensationunder APB Opinion No. 25 and FASB Interpretation No. 44

On June 1, 2000, the SEC staff provided the FASB staff with a list of 31practice questions related to accounting for stock compensation primarilyunder APB Opinion No. 25, Accounting for Stock Issued to Employees, andInterpretation No. 44, Accounting for Certain Transactions involving StockCompensation. Additional questions were subsequently raised by the SEC. TheEITF formed a working group to address these issues.

At the March 2002 meeting, the Task Force reached a consensus on the final issuesunder Issue 00-23 and agreed to disband the Issue 00-23 working group.

Issue No. 01-3, Accounting in a Business Combination for DeferredRevenue of an Acquiree

This Issue addresses whether the acquiring entity should recognize a liabilityfor deferred revenue previously recognized on the acquired entity's balancesheet when a business combination is initially recorded and, if so, how thefair value of that liability should be measured.

The Task Force reached a consensus on this Issue at the March 2002 meeting.

Issue No. 01-7, Creditor's Accounting for a Modification or Exchange of DebtInstruments

This Issue concerns whether the accounting by a creditor and a debtor for adebt modification should be symmetrical and, if not, how a creditor shouldevaluate whether a refinancing or restructuring results in more than a minormodification to the original debt instrument under SFAS No. 91, Accountingfor Nonrefundable Fees and Costs Associated with Originating or Acquiring Loansand Initial Direct Costs of Leases.

The Task Force reached a consensus on this Issue at the January 2002 meeting.

Issue 01-12, The Impact of the Guidance in Paragraphs 10(e)(2) and 58(c)(3)of FASB Statement No. 133, Accounting for Derivative Instruments andHedging Activities, on Residual Value Guarantees Accounted for inAccordance with FASB Statement No. 13, Accounting for Leases

The Task Force reached a consensus on part of this Issue at the November2001 EITF meeting, leaving one remaining tentative conclusion addressingwhether a third-party residual value guarantee is within the scope of SFAS133.

The Task Force reached a consensus on the remaining open item within this Issueat the March 2002 meeting.

FASB Developments






GASB Developments

SEC Developments

AICPA Developments


Appendix

Selected FASB Links





http://www.fasb.org




7

Issue No. 02-3, Recognition and Reporting of Gains and Losses on EnergyTrading Contracts under EITF Issues No. 98-10, Accounting for ContractsInvolved in Energy Trading and Risk Management Activities, and No. 00-17,Measuring the Fair Value of Energy-Related Contracts in Applying Issue No.98-10

This Issue addresses certain matters related to energy-trading activities,including (1) gross versus net presentation in the income statement, (2)whether the initial fair value of an energy-trading contract can be other thanthe exchange price, and (3) additional disclosure requirements for energy-trading activities.

The Task Force reached a consensus on this Issue at the October 2002 meeting. Atthe November 2002 meeting, the Task Force and FASB staff discussed changesproposed by the FASB staff to the final wording of the consensus. The changes relateto the definition of the term "fair value" and its appropriate application with respectto this Issue.

Issue No. 02-4, Determining Whether a Debtor's Modification or Exchange ofDebt Instruments in within the Scope of FASB Statement No. 15

The Task Force reached a consensus on this Issue at the January 2002meeting, but requested the FASB staff to identify additional factors relating towhether a modification or an exchange is a troubled debt restructuring withinthe scope of SFAS No. 15, Accounting by Debtors and Creditors for TroubledDebt Restructurings.

At the March 2002 meeting, the Task Force reached a consensus on theindicators identified by the FASB staff and concluded that the consensusreached in this Issue nullifies EITF Issue No. 89-15, Accounting for aModification of Debt Terms When the Debtor Is Experiencing FinancialDifficulties.

Issue No. 02-5, Definition of "Common Control" in Relation to FASBStatement No. 141, Business Combinations

SFAS 141 does not define the term common control in the context of whencommon majority ownership exists by an individual, a family, or a groupaffiliated in some other manner. The SEC previously addressed this issue in aspeech; however, in 2002 the SEC staff began an initiative to remove staffspeeches from its website. The FASB is expected to define common control aspart of its ongoing business combinations project, but the EITF agendacommittee suggested that the Task Force provide interim guidance until thebusiness combinations project is complete.

At the March 2002 meeting, the Task Force reached a consensus on this Issue thatreflects the views previously expressed by the SEC, with minor clarifications.

FASB Developments






GASB Developments

SEC Developments

AICPA Developments


Appendix

Selected FASB Links





http://www.fasb.org




8

Issue No. 02-6, Classification in the Statement of Cash Flows of PaymentMade to Settle an Asset Retirement Obligation Within the Scope of FASBStatement No. 143, Accounting for Asset Retirement Obligations

This Issue arose because SFAS 143 and SFAS No. 95, Statement of Cash Flows,do not provide guidance regarding the classification within the statement ofcash flows of the cash outflows incurred upon the settlement of an assetretirement obligation liability.


Issue No. 02-7, Unit of Accounting for Testing Impairment of Indefinite-LivedIntangible Assets

SFAS No. 142, Goodwill and Other Intangible Assets, requires that intangibleassets not subject to amortization be tested annually for impairment, or morefrequently if events or changes in circumstances indicate that the asset mightbe impaired. This Issue addresses what the unit(s) of measure should be forevaluating impairment of intangible assets that have indefinite lives.


Issue No. 02-8, Accounting for Options Granted to Employees in Shares of anUnrelated Entity

This Issue was previously included in Issue 00-23 as subissue 51 and wasseparated and renumbered as a stand-alone Issue at the March 2002 meeting.This Issue addresses how an employer should account for awards granted toemployees that are indexed to the stock of an unrelated entity. These plans arefrequently referred to as "KEYSOPS," and the awards generally meet thedefinition of a derivative under SFAS 133.


Issue No. 02-11, Accounting for Reverse Spinoffs

This Issue addresses how to determine whether to account for a spinofftransaction as a reverse spinoff based on its substance instead of its legalform.

The Task Force reached a consensus on this Issue at the September 2002 meeting.

Issue No. 02-13, Deferred Income Tax Considerations in Applying theGoodwill Impairment Test in FASB Statement No. 142, Goodwill and OtherIntangible Assets

This Issue addresses (1) whether deferred income taxes should be included inthe carrying amount of a reporting unit for purposes of step 1 of the SFAS142 goodwill impairment test, (2) what income tax bases an entity should usefor a reporting unit's assets and liabilities (i.e., whether an entity should usethe existing income tax bases or assume new income tax bases for the unit'sassets and liabilities) in determining the implied fair value of a reporting

FASB Developments






GASB Developments

SEC Developments

AICPA Developments


Appendix

Selected FASB Links





http://www.fasb.org




9

unit's goodwill in step 2, and (3) when it is appropriate to estimate the fairvalue of a reporting unit by assuming that the unit could be bought or sold ina nontaxable transaction versus a taxable transaction.


Issue No. 02-15, Determining Whether Certain Conversions of ConvertibleDebt to Equity Securities Are within the Scope of FASB Statement No. 84,Induced Conversions of Convertible Debt

This Issue addresses (1) whether SFAS 84 applies when the "offer" forconsideration in excess of the original conversion terms was made by thebondholder, (2) whether that answer would change if an investment bank hadpurchased the bonds in the open market (at a significant discount from facevalue) and approached the company to increase the conversion terms of thenotes, and (3) whether an "offer" to induce conversion must be extended bythe debtor to all bondholders.


Issue No. 02-16, Accounting for Consideration Received from a Vendor by aCustomer (Including a Reseller of the Vendor's Products)

EITF Issue No. 01-9, Accounting for Consideration Given by a Vendor to aCustomer (Including a Reseller of the Vendor's Products), addressed theaccounting by a vendor for consideration given to a customer, including botha reseller of the vendor's products and an entity that purchases the vendor'sproducts from a reseller. Questions were raised regarding how a reseller of avendor's products should account for cash consideration received from avendor. The subissues contained in Issue 02-16 pertain to cash considerationreceived by a reseller from a vendor and recognition for up-front,nonrefundable cash consideration received by a reseller.

The Task Force reached a consensus on this Issue at the November 2002meeting.

Issue No. 02-17, Recognition of Customer Relationship Intangible AssetsAcquired in a Business Combination

Paragraphs A18–A21 of SFAS No. 141, Business Combinations, provideguidance on applying the separate recognition criteria to customer-relatedintangible assets, including (1) order or production backlog, (2) customercontracts and related customer relationships, and (3) noncontractual customerrelationships. The EITF discussed questions that have been raised regardingthe application of paragraphs A19-A21 to customer relationships with respectto determining the composition of related intangible assets.

The Task Force reached a consensus on this Issue at the October 2002 meeting.

FASB Developments






GASB Developments

SEC Developments

AICPA Developments


Appendix

Selected FASB Links





http://www.fasb.org




10


Invitation to Comment on Accounting for Stock-Based Compensation

On November 18, 2002, the FASB issued an Invitation to Comment,Accounting for Stock-Based Compensation: A Comparison of FASBStatement No. 123, Accounting for Stock-Based Compensation, and ItsRelated Interpretations, and IASB Proposed IFRS, Share-based Payment.

In particular, the Invitation to Comment solicits constituents' views on thesimilarities and differences in the FASB and IASB documents, as well ascomments on other aspects of the fair value based method of accounting forstock-based compensation, including issues related to measuring the fairvalue of employee stock options.

The Invitation to Comment is available on the FASB's website athttp://www.fasb.org/draft/itc_intropg_stock_based_comp.shtml. Thecomment period ends on February 1, 2003.

Principles-Based Approach to U.S. Standards Setting

In October 2002, the FASB began consideration of a proposal on a principles-based approach to U.S. standards setting. The proposal is available on theFASB's website at http://www.fasb.org/proposals/principles-based_approach.pdf. The comment period ends on January 3, 2003.

Draft Guidance for Derivatives of Certain Special-Purpose Entities

On May 1, 2002, the FASB issued a draft document, Questions and AnswersRelated to Derivative Financial Instruments Held or Entered into by a QualifyingSpecial-Purpose Entity, as an aid to understanding and implementing certainaspects of SFAS No. 140, Accounting for Transfers and Servicing of FinancialAssets and Extinguishments of Liabilities. The draft Q&A document can beobtained on the FASB's website at http://www.fasb.org/draft/q&a140_supplement.pdf. The Q&As, which represent tentative conclusions of theFASB, will be included in a future FASB Staff Implementation Guide oncethey are officially cleared by the Board.

New Q&A Added to SFAS 87 Guidance

On March 22, 2002, the FASB posted to its website a new Q&A, "Impact ofthe Sunset Provision of the Economic Growth and Tax Relief ReconciliationAct," for inclusion in the FASB Staff Implementation Guidance for SFAS No.87, Employers' Accounting for Pensions. The Q&A is available athttp://www.fasb.org/q&a87.pdf.

FASB Developments






GASB Developments

SEC Developments

AICPA Developments


Appendix

Selected FASB Links





http://www.fasb.org/draft/itc_intropg_stock_based_comp.shtml

http://www.fasb.org/proposals/principles-based_approach.pdf

http://www.fasb.org/draft/q&a140_supplement.pdf

http://www.fasb.org/q&a87.pdf

http://www.fasb.org




GASB Developments

GASB Statement No. 39, Determining Whether Certain Organizations AreComponent Units, an amendment of GASB Statement No. 14

On May 28, 2002, the GASB issued Statement No. 39, Determining WhetherCertain Organizations Are Component Units, an amendment of GASBStatement No. 14, to clarify existing accounting guidance and provide forgreater consistency and comparability in the accounting for certainorganizations that are closely related to a primary government.

Specifically, the Statement (1) requires that the financial activities offundraising foundations and similar organizations (e.g., not-for-profitfoundations related to public universities, school districts, and publiclibraries) be reported in the financial statements of their related state andlocal governments when specified criteria are met and (2) specifies themanner in which those activities should be reported. GASB Statement 39 iseffective for fiscal years beginning after June 15, 2003.

The GASB subsequently announced that an error during the final stages ofproduction on Statement 39 caused the phrase "or its component units" to beinadvertently dropped from paragraph 5 of the standard. As corrected (inbold), the second criterion listed in that paragraph is, "The primarygovernment, or its component units, is entitled to, or has the ability tootherwise access, a majority of the economic resources received or held by theseparate organization." Further information about this matter, includingdetails for correcting the error by hand or for receiving a peel-and-stickoverlay, can be obtained on the GASB's website at http://www.gasb.org/tech/GASB_39_ error.html.

GASB Exposure Draft Outstanding

Proposed Standard on Disclosure of Certain Risks

On June 28, 2002, the GASB issued an exposure draft of a proposed GASBStatement, Deposit and Investment Risk Disclosures. The exposure draft, which

GASB Statement Issued

11

GASB Developments


GASB Exposure DraftOutstanding

FASB Developments

SEC Developments

AICPA Developments


Appendix

Selected GASB Links

GASB Homepage: http://www.gasb.org

GASB News Center:http://www.gasb.org/news/index.html

GASB Publications:http://www.gasb.org/pub/index.html

http://www.gasb.org/tech/GASB_39_ error.html

http://www.gasb.org

http://www.gasb.org/news/index.html

http://www.gasb.org/pub/index.html

12

would amend GASB Statement No. 3, Deposits with Financial Institutions,Investments (including Repurchase Agreements), and Reverse RepurchaseAgreements, would require the financial statements of a governmental entity todisclose:

• Credit-risk information, including quality information issued byrating agencies

• Interest-rate information, including maturity information forinvestment securities, such as weighted average maturities orspecification identification of the securities

• Basis for sensitivity of investments that are highly sensitive tochanges in interest rates

• Foreign-investment information, including the foreign investment'sdenomination

• Deposit and investment policies related to disclosed risks.

A final Statement would be effective for fiscal years beginning after June 15,2004.

Further information about the exposure draft and the current status of theproject can be obtained on the GASB's website at http://www.gasb.org/news/nr070102.html. The comment period has ended.

Note: Conclusions of the GASB are subject to change at future Boardmeetings and generally do not affect current accounting requirements untilan official position (Statement or Interpretation) is issued. Official positionsof the GASB are determined only after extensive deliberation and dueprocess, including a formal vote by written ballot to issue a Statement orInterpretation.

GASB Developments


GASB Exposure DraftOutstanding

FASB Developments

SEC Developments

AICPA Developments


Appendix

Selected GASB Links

GASB Homepage: http://www.gasb.org

GASB News Center:http://www.gasb.org/news/index.html

GASB Publications:http://www.gasb.org/pub/index.html

http://www.gasb.org/news/nr070102.html

http://www.gasb.org

http://www.gasb.org/news/index.html

http://www.gasb.org/pub/index.html

SEC Developments

The SEC issued various rules during calendar-year 2002, including thoseselected rules summarized below. All SEC final rules are available on theSEC's website at http://www.sec.gov/rules/final.shtml.

FRR No. 61, Commission Statement about Management's Discussion andAnalysis of Financial Condition and Results of Operations

FRR 61, which was issued in January 2002, provides guidance on three areasin Management’s Discussion and Analysis of Financial Condition and Resultsof Operations: (1) liquidity and capital resources, including off-balance-sheetarrangements, (2) certain trading activities involving nonexchange-tradedcontracts accounted for at fair value, and (3) relationships and transactionson terms that would not be available from clearly independent third thirdparties.

FRR 61 is available on the SEC’s website at http://www.sec.gov/rules/other/33-8056.htm.

Sworn Statements by Principal Officers

In June 2002, the SEC issued Order No. 4-460, which requires the principalexecutive officer and principal financial officer of 947 public companies toeach file a separate, sworn written statement with the SEC in which theypersonally attest that their company's covered reports are materially truthfuland complete or explain why such a statement would be incorrect. The Orderis available on the SEC's website at http://www.sec.gov/rules/other/4-460.htm.

The sworn statements have been categorized by the SEC either as (1) those inthe form of Exhibit A to the Order or (2) all others, and are available on theSEC’s website. Also with respect to filing the sworn statements, the SEC staffhas said that, in order to "avoid possible misuse of such information," itbelieves companies should (1) file an Item 9 or Item 5 Current Report onForm 8-K when the statements are completed and signed, (2) disclose thefiling of the statements by attaching them as exhibits to Form 8-K, (3) post the

SEC Rules

13

SEC Developments

SEC Rules

Complying With the Sarbanes-Oxley Act of 2002

SEC Staff Legal Bulletin 14A

FASB Developments

GASB Developments

AICPA Developments


Appendix

Selected SEC Links

SEC Homepage: http://www.sec.gov

Regulatory Actions:http://www.sec.gov/rules.shtml

Staff Interpretations:http://www.sec.gov/interps.shtml

News and Public Statements:http://www.sec.gov/news.shtml

http://www.sec.gov/rules/final.shtml

http://www.sec.gov/rules/other/33-8056.htm

http://www.sec.gov/rules/other/4-460.htm

http://www.sec.gov

http://www.sec.gov/rules.shtml

http://www.sec.gov/interps.shtml

http://www.sec.gov/news.shtml

14

statements on their websites, and (4) take whatever additional steps areconsidered appropriate to ensure broad dissemination of the statements.

The SEC staff has issued several FAQ documents relating to the swornstatement requirement, which are available at http://www.sec.gov/spotlight/officerstatements.htm.


Signed into law by President George W. Bush on July 30, 2002, the Sarbanes-Oxley Act of 2002 aims to improve corporate responsibility and the qualityand transparency of financial reporting and will have a major impact onpublicly held companies and their outside professional advisors. Specifically,the Act:

• Creates criminal penalties and prison terms for company fraud and illegal document shredding

• Prohibits certain loans from companies to their executives and directors

• Empowers the SEC to bar executives convicted of fraud from futureservice as corporate officers and directors

• Imposes restrictions on the nonaudit services that accounting firmsmay provide to their publicly held audit clients

• Extends the period of time in which defrauded investors may bringlawsuits against companies

• Establishes an independent oversight board for the accountingprofession that will be overseen by the SEC.

A summary, prepared by the AICPA, is available at http://www.aicpa.org/info/sarbanes_oxley_summary.htm.

Following passage of the Sarbanes-Oxley Act, the SEC undertook a number ofinitiatives to help ensure compliance with the Act by registrants. Keyinitiatives are discussed below.

Accelerated Deadline for Insider Transaction Reports Under the Sarbanes-

Oxley Act

In August 2002, the SEC issued a final rule that provides supplementalinformation on the provision of the Sarbanes-Oxley Act that requires officers,directors, and principal security holders to file reports "before the end of thesecond business day following the day on which the subject transaction hasbeen executed, or at such other time as the Commission shall establish, byrule, in any case in which the Commission determines that such 2-day periodis not feasible." The final rule is available on the SEC's website athttp://www.sec.gov/rules/final/34-46421.htm.

SEC Developments

SEC Rules



FASB Developments

GASB Developments

AICPA Developments


Appendix

Selected SEC Links





http://www.sec.gov/spotlight/officerstatements.htm

http://www.aicpa.org/info/sarbanes_oxley_summary.htm

http://www.sec.gov/rules/final/34-46421.htm

http://www.sec.gov




15

Certification by CEOs and CFOs Under the Sarbanes-Oxley Act

In August 2002, the SEC adopted rules to implement Section 302 of theSarbanes-Oxley Act, which requires a registrant's principal executive andfinancial officers to certify their company's quarterly and annual reports.These new rules supersede the certification proposal released by the SEC onJune 14, 2002. However, compliance with the Section 302 certificationrequirements does not satisfy the certification requirements of Section 906 ofthe Sarbanes-Oxley Act.

The rules apply to the principal executive and financial officers of registrants,including foreign private issuers, that file quarterly and annual reports undereither Section 13a or 15d of the Securities Exchange Act of 1934 and requirethe certifications to be included in the quarterly and annual reports and inany subsequently filed amendments of those reports.

The final rule can be obtained on the SEC's website at http://www.sec.gov/rules/final/33-8124.htm.

Acceleration of Filing Deadlines

In August 2002, the SEC adopted amendments that accelerate the filingdeadlines for quarterly reports filed on Form 10-Q and annual reports filed onForm 10-K for domestic companies that (1) have a public float of at least $75million, (2) have been reporting for at least 12 months, (3) have previouslyfiled one annual report, and (4) are not eligible to use the Commission'sspecial forms for small business issuers.

The Commission adopted a three-year phase-in period with no changes to thecurrent filing deadlines in the first year. Therefore, the annual report deadlinein year one remains 90 days after the registrant's fiscal year end. Thisdeadline changes to 75 days for year two and 60 days for year three andthereafter. The quarterly report deadline remains 45 days for year one,changes to 40 days in year two, and to 35 days in year three and thereafter.The first accelerations to 75 days for annual reports will occur for fiscal yearsending on or after December 15, 2003 and acceleration of quarterly reportswill begin thereafter (quarters ending after March 15, 2004).

The final rule is available at http://www.sec.gov/rules/ final/33-8128.htm.

Financial Experts Serving on Audit Committees

In October 2002, the SEC proposed new Item 309 to Regulations S-K and S-B,new Item 15(b) to Form 20-F, and new Instruction B (8) to Form 40-F, whichwould all be identical in substance and would require companies to disclose:

• The number and names of persons that the board of directors hasdetermined to be the financial experts serving on the company's auditcommittee; and

SEC Developments

SEC Rules



FASB Developments

GASB Developments

AICPA Developments


Appendix

Selected SEC Links





http://www.sec.gov/rules/final/33-8124.htm

http://www.sec.gov/rules/ final/33-8128.htm

http://www.sec.gov




16

• Whether the financial expert or experts are "independent," as thatterm is used in Section 10A(m)(3) of the Exchange Act, and, if not, anexplanation of why they are not.

If the company does not have a financial expert serving on its auditcommittee, the company must disclose that fact and explain why.

The SEC defines the term financial expert in the proposed rules. Thedefinition is based on the attributes in Section 407 of the Sarbanes-Oxley Act,but it includes modifications made by the SEC. The proposed rule alsoprovides suggestions for companies to determine who is a financial expert.

The proposed rules are available on the SEC's website athttp://www.sec.gov/rules/proposed/33-8138.htm.

Adopting a Code of Ethics

In October 2002, the SEC proposed new Item 406 to Regulations S-B and S-K,new Item 15(c) to Form 20-F, and new Instruction B(9) to Form 40-F torequire a company subject to Exchange Act reporting requirements todisclose:

• Whether the company has adopted a written code of ethics thatapplies to the company's principal executive officer, principal financialofficer, principal accounting officer or controller, or personsperforming similar functions

• If the company has not adopted such a code of ethics, the reasons ithas not done so.

The proposed rules define the term code of ethics as a codification of standardsthat is reasonably necessary to deter wrongdoing and to promote:

• Honest and ethical conduct

• Avoidance of conflicts of interest

• Full, fair, accurate, timely, and understandable disclosure in reportsand documents that a company files with or submits to the SEC andin other public communications made by the company

• Compliance with applicable governmental laws, rules, and regulations

• The prompt internal reporting of code violations to an appropriate person or persons identified in the code

• Accountability for adherence to the code.

U.S. registrants, other than registered investment companies, would berequired to disclose either on Form 8-K or on their Internet websites anychanges to or waivers of such codes of ethics. Foreign private issuers andregistered investment companies would be required to disclose changes toand waivers of such codes of ethics in their periodic reports or on theirInternet websites.

SEC Developments

SEC Rules



FASB Developments

GASB Developments

AICPA Developments


Appendix

Selected SEC Links





http://www.sec.gov/rules/proposed/33-8138.htm

http://www.sec.gov




17

The proposed rules are available on the SEC's website at http://www.sec.gov/rules/proposed/33-8138.htm.

Internal Control Reports

In October 2002, the SEC proposed to amend Item 307 of Regulations S-Kand S-B, as well as Forms 20-F and 40-F, to require a company's annualreport to contain an internal control report of management that includes:

• A statement of management's responsibilities for establishing andmaintaining adequate internal controls and procedures for financialreporting

• Conclusions about the effectiveness of the company's internalcontrols and procedures for financial reporting based onmanagement's evaluation of those controls and procedures inaccordance with Exchange Act Rule 13a-15 or 15d-15, as of the end ofthe company's most recent fiscal year

• A statement that the registered public accounting firm that preparedor issued the company's audit report relating to the financialstatements included in the company's annual report has attested to,and reported on, management's evaluation of the company's internalcontrols and procedures for financial reporting.

The proposed amendments do not specify the exact content of the proposedmanagement report because the SEC said it "likely would result in boilerplateresponses of little value." Instead the SEC believes management should tailorthe report to the company's circumstances.

The proposed amendments are available on the SEC's website athttp://www.sec.gov/rules/proposed/33-8138.htm.

Improper Influence on Conduct of Audits

Also in October 2002, the SEC voted to propose rule amendments toimplement Section 303(a) of the Sarbanes-Oxley Act. Section 303(a) prohibitsan issuer's officers and directors, and persons acting under the direction of anofficer or director, from taking any action to fraudulently influence, coerce,manipulate, or mislead the auditor of the issuer's financial statements for thepurpose of rendering those financial statements materially misleading.

The proposed rule amendments are available on the SEC's website athttp://www.sec.gov/rules/proposed/34-46685.htm.

Use of Non-GAAP Financial Information

Also in October 2002, the SEC proposed rules under Section 401(b) of theSarbanes-Oxley Act to apply to the public disclosure or release of materialinformation that includes a "non-GAAP financial measure." For this purpose,a "non-GAAP financial measure" would be a numerical measure of acompany's financial performance that (1) excludes amounts, or is subject to

SEC Developments

SEC Rules



FASB Developments

GASB Developments

AICPA Developments


Appendix

Selected SEC Links








http://www.sec.gov




18

adjustments that have the effect of excluding amounts, that are included inthe comparable measure calculated and presented in accordance with GAAPin the statement of income, balance sheet, or statement of cash flows (orequivalent statements) of the issuer or (2) includes amounts, or is subject toadjustments that have the effect of including amounts, that are excluded fromthe comparable measure so calculated and presented. Statistical and operatingmeasures would not be covered.

The SEC proposed new Regulation G, which would apply whenever acompany publicly discloses or releases material information that includes anon-GAAP financial measure. This regulation would prohibit materialmisstatements or omissions that would make the presentation of the materialnon-GAAP financial measure, under the circumstances in which it is made,misleading, and would require a quantitative reconciliation (by schedule orother clearly understandable method) of the differences between the non-GAAP financial measure presented and the comparable financial measure ormeasures calculated and presented in accordance with GAAP. Regulation Gwould provide a limited exception for certain foreign private issuers.

The entire proposed rule is available on the SEC's website athttp://www.sec.gov/rules/proposed/33-8145.htm.

MD&A Disclosure About Off-Balance-Sheet Arrangements, Contractual

Obligations, and Contingent Liabilities and Commitments

In October 2002, the SEC proposed rules explicitly requiring a company todisclose in its annual and quarterly financial reports all material off-balance-sheet transactions, arrangements, obligations (including contingentobligations), and other relationships of the company with unconsolidatedentities or other persons that may have a material current or future effect onfinancial condition, changes in financial condition, results of operations,liquidity, capital expenditures, capital resources, or significant components ofrevenues or expenses in the MD&A section of the company's disclosuredocuments.

The proposed rules would lower the threshold that triggers disclosure relatingto off-balance-sheet transactions. While MD&A disclosure about an off-balance-sheet transaction is currently required if the transaction is"reasonably likely" to have a material effect on the company, the proposedrules would require disclosure if the likelihood of the transaction having amaterial effect on the company is more than "remote."

The SEC also proposed requiring a company to include this disclosure in theMD&A section of its Securities Act registration statements.

The entire proposed rule is available on the SEC's website athttp://www.sec.gov/rules/proposed/33-8144.htm.

SEC Developments

SEC Rules



FASB Developments

GASB Developments

AICPA Developments


Appendix

Selected SEC Links







http://www.sec.gov




19

Insider Trades During Pension Fund Blackout Periods

In November 2002, the SEC also proposed rules, which were developed inconjunction with the Department of Labor, to clarify the scope and operationof the statutory trading prohibition in a manner that is consistent with theobjectives of Section 306(a) of the Sarbanes-Oxley Act and with Congressionalintent.

• Persons Subject to Trading Prohibition—Under the proposed rules,the term director would have the same meaning as under the generalExchange Act rules, and the term executive officer would have the samemeaning as the term officer under the insider reporting requirementsof Section 16(a) of the Exchange Act.

• Securities Subject to Trading Prohibition—Under the proposed rules,the term equity security would be defined to include both equitysecurities and derivative securities relating to an equity security,whether or not issued by the issuer.

• Transactions Subject to Trading Prohibition—The proposed ruleswould apply to indirect, as well as direct, acquisitions and dispositionsof equity securities where a director or executive officer had a"pecuniary interest" in the transaction.

Section 306(a) of the Sarbanes-Oxley Act permits the SEC to exemptappropriate transactions from the statutory trading prohibition, includingpurchases pursuant to an automatic dividend reinvestment program orpurchases or sales made pursuant to an advance election. The proposed ruleswould exempt:

• Acquisitions of equity securities under dividend or interestreinvestment plans

• Purchases or sales of equity securities that satisfy the affirmativedefense conditions of Exchange Act Rule 10b5-1(c)

• Purchases or sales of equity securities pursuant to certain employeebenefit plans, other than discretionary transactions

• Increases or decreases in equity securities holdings resulting from astock split, stock dividend, or pro rata rights distribution.

Blackout Period—The proposed rules would clarify application of the 50percent test and describe how the two statutorily mandated exceptions to ablackout period would operate.

Remedies—A violation of the statutory trading prohibition of Section 306(a)by a director or executive officer is subject to possible enforcement action bythe SEC. In addition, Section 306(a) provides that an issuer, or a securityholder on behalf of the issuer, may bring an action to recover the profitsrealized by a director or executive officer from a prohibited transaction duringa blackout period. The proposed rules would provide guidance on how thecomputation of profits would be made in a private action and solicitcomments on alternative approaches.

SEC Developments

SEC Rules



FASB Developments

GASB Developments

AICPA Developments


Appendix

Selected SEC Links





http://www.sec.gov




20

Notice of Blackout Period—The proposed rules would specify the content andtiming of an issuer's required notice of a blackout period to directors andexecutive officers. The proposed rules would also require an issuer to notifythe SEC of an impending blackout period by means of a Form 8-K filing.


Auditor Independence

In November 2002, the SEC proposed rules on auditor independence asrequired by Section 208(a) of the Sarbanes-Oxley Act. These proposed ruleswould:

• Revise its regulations related to nonaudit services that impair anaccounting firm's independence when provided to an audit client

• Require a registrant's audit committee to preapprove all audit andnonaudit services provided by the auditor of the financial statements

• Prohibit partners on audit engagement teams from providing auditservices to a registrant for more than five consecutive years and fromreturning to audit services with the same registrant within five years

• Prohibit accounting firms from auditing an audit client's financialstatements if certain members of the registrant's management hadbeen members of the accounting firm's audit engagement teamwithin the one-year period preceding the beginning of the auditprocedures

• Require the auditor of a registrant's financial statements to reportcertain matters to the registrant's audit committee, including"critical" accounting policies

• Require disclosures to investors of information related to the auditand nonaudit services provided by, and fees paid by the registrant to,the auditor of the registrant's financial statements. The disclosureswould be made in the registrant's annual report and would includefees paid for audits, tax preparation, and all other fees for the yearcovered by the filing and the previous year.

Also under the proposed rules, an accountant would not be independent froman audit client if any partner, principal, or shareholder of the accounting firmwho is a member of the engagement team received compensation baseddirectly on any service provided or sold to that client other than audit, review,and attest services.


SEC Developments

SEC Rules



FASB Developments

GASB Developments

AICPA Developments


Appendix

Selected SEC Links







http://www.sec.gov




21

Audit Workpaper Retention

Also in November 2002, the SEC proposed rules to specify that auditors mustretain workpapers for a five-year period subsequent to the completion of anaudit or review of a registrant's financial statements. The proposed rulesspecify that an auditor should retain workpapers and other documents thatform the basis of the audit or review and memorandum, correspondence,communications, other documents, and records (including electronicrecords), which are created, sent, or received in connection with the audit orreview and that contain conclusions, opinions, analyses, or financial datarelated to the audit or review.

The proposed rule is available on the SEC's website at http://www.sec.gov/rules/proposed/33-8151.htm.

Frequently Asked Questions on Sarbanes-Oxley

The SEC's Division of Corporation Finance maintains a summary offrequently asked questions relating to the Sarbanes-Oxley Act of 2002.The FAQs are available on the SEC's website at http://www.sec.gov/divisions/ corpfin/faqs/soxact2002.htm.


On July 12, 2002, the SEC's Division of Corporation Finance ("the Division")issued SLB No. 14A relating to the application of Exchange Act Rule 14a-8(the "shareholder proposal" rule) to equity compensation plans.

Under SLB 14A, the Division will continue to preclude companies fromrelying on the ordinary-business provision to omit from proxy statements anyproposal that focuses on equity compensation plans that may be used tocompensate only senior executive officers and directors and will now addequity compensation plans that would potentially result in material dilution toexisting shareholders, regardless of who participates in the plan, to the list ofshareholder proposals that may not rely on the ordinary-business exclusion.

SLB 14A, which applies to all SEC registrants, can be obtained on the SEC'swebsite at http://www.sec.gov/interps/legal/cfslb14a.htm.

SEC Developments

SEC Rules



FASB Developments

GASB Developments

AICPA Developments


Appendix

Selected SEC Links






http://www.sec.gov/divisions/ corpfin/faqs/soxact2002.htm

http://www.sec.gov/interps/legal/cfslb14a.htm

http://www.sec.gov




AICPA Developments

On November 5, 2002, the AICPA announced that, in cooperation with theFASB and to help achieve the mutual goal of creating principles-based U.S.accounting standards, it has agreed to stop issuing "general-purpose" SOPs.

As the AICPA's senior technical committee authorized to speak on behalf of

the AICPA regarding financial reporting matters, AcSEC will continue to:

• Work on industry-specific accounting and audit guides and consider

ways to provide frequent updates to such guides via electronic

communications

• Develop comment letters to the FASB and the IASB on proposed new standards

• Help AICPA members who serve the public interest to put rules into practice

• Play an advocacy role on behalf of AICPA members who serveinvestors and the financial reporting community to ensure that theFASB undertakes the necessary projects and efforts to improve financial reporting.

A press release containing the AICPA's announcement can be obtained on theAICPA's website at http://www.aicpa.org/news/2002/p021105.asp.

Exposure Drafts of AcSEC SOPs Outstanding

Accounting and Reporting by Insurance Enterprises for Certain

Nontraditional Long-Duration Contracts and for Separate Accounts

This proposed SOP addresses such matters as separate account presentationand related interest, gains, and losses on the transfer of assets from thegeneral account to a separate account; liability valuation; return based on acontractually referenced pool or assets or index; "annuitization" alternatives;contracts that contain death or other insurance benefit features; and salesinducements to contract holders.

AICPA to Curtail Certain Standards-Setting Activities

22

AICPA Developments

AICPA to Curtail CertainStandards-Setting Activities

Exposure Drafts of AcSECSOPs Outstanding

Other AcSEC Projects inProgress

TPAs Issued by the AICPAStaff

Other AICPA Developments

FASB Developments

GASB Developments

SEC Developments


Appendix

Selected AICPA Links

AICPA Homepage:http://www.aicpa.org/index.htm

AcSEC Homepage:http://www.aicpa.org/members/div/acctstd/index.htm

http://www.aicpa.org/news/2002/p021105.asp

http://www.aicpa.org/index.htm

http://www.aicpa.org/members/div/acctstd/index.htm

23

A final SOP would be effective for financial statements for fiscal yearsbeginning after December 15, 2003, with earlier adoption encouraged. TheSOP may not be applied retroactively to prior years' financial statements, andinitial application should be as of the beginning of an entity's fiscal year.

The exposure draft, which was issued on July 31, 2002, can be obtained on theAICPA's website at http://www.aicpa.org/members/div/acctstd/edo/ntld_contract.htm. The comment period has ended.

Accounting for Derivative Instruments and Hedging Activities by Not-for-

Profit Health Care Organizations, and Clarification of the Performance

Indicator

AcSEC has approved, and the FASB has cleared, final issuance of thisproposed SOP, which (1) provides guidance on how nongovernmental not-for-profit health care organizations should report gains or losses on hedging andnonhedging derivative instruments under SFAS No. 133, Accounting forDerivative Instruments and Hedging Activities, as amended, and (2) clarifiescertain matters regarding the performance indicator (earnings measure)reported by such organizations. The provisions of the proposed SOP would beeffective for fiscal years beginning after December 15, 2002.

The exposure draft, which was issued on June 14, 2002, can be obtained athttp://www.aicpa.org/download/acctstd/instruments.pdf. The commentperiod has ended.

Accounting for Certain Costs and Activities Related to Property, Plant and

Equipment

This proposed SOP, though issued for comment in 2001, remainsoutstanding in late 2002, pending discussions with the FASB.

The project seeks to narrow diversity in practice in accounting for costs ofimprovements, replacements, betterments, additions (and terms synonymouswith those such as redevelopments, refurbishments, renovations, andrehabilitations), and repairs and maintenance. The SOP will also addresscapitalization of indirect and overhead costs and component accounting forproperty, plant, and equipment assets.

Accounting for Loans and Certain Debt Securities Acquired in a Transfer

(formerly known as Accounting for Certain Purchased Loans and Debt

Securities)

This proposed SOP was issued for comment in 2001, but is expected to beissued as final in late 2002.

This project aims to reconcile differences among SFAS No. 91, Accounting forNonrefundable Fees and Costs Associated with Originating or Acquiring Loans andInitial Direct Costs of Leases, AICPA Practice Bulletin 6, Amortization ofDiscounts on Certain Acquired Loans, and certain other pronouncements in

AICPA Developments






FASB Developments

GASB Developments

SEC Developments


Appendix




http://www.aicpa.org/members/div/acctstd/edo/ntld_contract.htm

http://www.aicpa.org/download/acctstd/instruments.pdf



24

accounting for discounts on certain acquired loans, measurement of creditlosses, and recognition of interest income.

Other AcSEC Projects in Progress

The following AcSEC projects are expected to result in the issuance ofexposure drafts of proposed SOPs in the near future. Further informationabout each project can be found in the latest issue of the AICPA's AcSECUpdate newsletter, located on the AICPA's website at http://www.aicpa.org/members/ div/acctstd/acsec/index.htm.

Allowance for Credit Losses

This project will provide guidance on accounting for periodic credit lossprovisions and the related allowance for credit losses. The proposed SOPwould apply to all creditors, other than state and local governments andentities subject to pronouncements of the Federal Accounting StandardsAdvisory Board.

Deferred Acquisition Costs on Internal Replacements

The objective of this project is to provide guidance to life insuranceenterprises on accounting for deferred acquisition costs related to insurancecontracts that are replaced by other contracts. The accounting will largelydepend on whether a replacement contract is considered to be a new contractor the continuation of an original contract, based on specified criteria.

Real Estate Time-Sharing Transactions

This project addresses the accounting for the sale of real estate time-sharinginterests. The proposed SOP addresses how revenue should be recognized,how allowances for uncollectible receivables should be determined, and whatkinds of selling costs may be deferred. The proposed SOP has been approvedby AcSEC and cleared by the FASB for exposure.

Scope Clarification of Investment Companies Guide

The objective of this project is to develop criteria for determining when thespecialized accounting principles contained in the AICPA Audit andAccounting Guide, Audits of Investment Companies, should be applied by anentity that performs, or has a subsidiary or an equity investee that performs,certain investment activities.

TPAs Issued by the AICPA Staff

The following TPAs were issued by the AICPA staff in 2002. The TPAs areavailable on the AICPA website at the links indicated.

AICPA Developments






FASB Developments

GASB Developments

SEC Developments


Appendix




http://www.aicpa.org/members/div/acctstd/acsec/index.htm



25

Implementation Guidance for Private (Nonregistered) Investment

Companies

This TPA addresses how private investment companies should disclosefinancial statement highlights in accordance with the AICPA Audit andAccounting Guide, Audits of Investment Companies. http://www.aicpa.org/members/div/ acctstd/general/private.htm.

Reporting Financial Highlights by Separate Accounts

This TPA provides guidance on how investment companies should apply thefinancial highlights requirement of the AICPA Audit and Accounting Guide,Audits of Investment Companies, to "separate accounts," as defined in thatguide. http://www.aicpa.org/members/div/acctstd/general/separate_accts.htm.

Guidance Relating to Accounting for Computer Systems Costs Incurred in

Connection with the Health Insurance Portability and Accountability Act of

1996 ("the Act")

This TPA specifies that health care organizations should apply the provisionsof SOP 98-1, Accounting for the Costs of Computer Software Developed orObtained for Internal Use, in accounting for costs associated with upgradingand improving computer systems to comply with the Acthttp://www.aicpa.org/members/div/acctstd/general/healthinsprotability.htm.

SOP 97-2, Software Revenue Recognition Questions and Answers

This TPA addresses the effect of the following matters in the application ofSOP 97-2, Software Revenue Recognition:

• Commencement of an initial license term

• Extension/renewal of a license term

• Additional product(s) in an extension/renewal of a license term

• An arrangement containing an option to extend a time-based licenseindefinitely

• Discounts on future products on the residual method.

http://www.aicpa.org/members/div/acctstd/general/tpa5.htm


New Audit Standard on Fraud

On October 15, 2002, the AICPA's Auditing Standards Board approvedissuance of a new SAS that provides auditors with expanded guidance fordetecting material fraud in financial statements.

AICPA Developments






FASB Developments

GASB Developments

SEC Developments


Appendix




http://www.aicpa.org/members/div/ acctstd/general/private.htm

http://www.aicpa.org/members/div/acctstd/general/separate_accts.htm

http://www.aicpa.org/members/div/acctstd/general/healthinsprotability.htm

http://www.aicpa.org/members/div/acctstd/general/tpa5.htm



26

SAS No. 99, Consideration of Fraud in a Financial Statement Audit, remindsauditors that they must approach every audit with professional skepticism andnot automatically assume that management is honest. Additionally, the SASrequires auditors to:

• Use more of an "engagement team" approach to fraud-risk identification

• Make inquiries of management and others in the organization as tothe risk of fraud and whether they are aware of any frauds

• Design tests of areas, locations, and accounts that would beunpredictable and unexpected by the client

• Include procedures to test for management override of controls.

SAS 99 is effective for audits of financial statements for periods beginning onor after December 15, 2002, with earlier adoption encouraged.

A press release announcing the approval of SAS 99 is available athttp://www.aicpa.org/news/2002/p021015.asp.

Guidance on Combating Fraud

On November 19, 2002, the AICPA, the Financial Executives International,and several other professional associations jointly issued a paper entitledManagement Antifraud Programs and Controls: Guidance to Help Prevent, Deter,and Detect Fraud.

Developed with the assistance of the National Association of CorporateDirectors and certain other organizations, the paper contains a number ofrecommendations aimed at helping boards of directors, audit committees,and management to thwart fraud in their companies. The recommendationsinclude:

• Creating a culture of honesty and high ethics

• Proactively evaluating antifraud processes and controls

• Developing an appropriate oversight process.

The paper and a related press release are available on the AICPA's website athttp://www.aicpa.org/antifraud/management.htm andhttp://www.aicpa.org/news/2002/p021118.asp, respectively.

Toolkit on Related-Party Transactions

The AICPA issued a related-party-transactions toolkit to provide an overviewof selected authoritative accounting and auditing literature and SECrequirements regarding related-party transactions. The toolkit includesillustrative checklists, sample confirmation letters, and other aids based onthe best-practices guidance of Deloitte & Touche and other major accountingfirms.

AICPA Developments

AICPA to Curtail CertainStandards Setting Activities





FASB Developments

GASB Developments

SEC Developments


Appendix





http://www.aicpa.org/antifraud/management.htm




27

AICPA Developments






FASB Developments

GASB Developments

SEC Developments


Appendix




The toolkit is available on the AICPA's website at http://www.aicpa.org/news/relpty1.htm.

Discussion Paper on the Impact of the Current Economic and Business

Environment on Financial Reporting

This discussion paper, a collaborative effort of the AICPA, Deloitte & Touche,and other major accounting firms, identifies and discusses issues relevant tothe current financial reporting environment that financial statementpreparers, auditors, and audit committees should consider during the currentreporting cycle.

The discussion paper is available on Deloitte & Touche's website athttp://www.deloitte.com/dtt/cda/doc/content/Impact_financialreporting(1).pdf.

"Sustainability Reporting"

The AICPA is offering information, including FAQs and links to resources,on its website to assist companies that prepare and issue reports on theirperformance regarding health, safety, and environmental matters (sometimescalled "sustainability reporting"). Such matters relate to employee health, on-the-job accident rates, emissions of certain pollutants, spills, volumes of wastegenerated and initiatives to reduce and minimize such incidents and releases.The information is available on the AICPA's website at http://www.aicpa.org/innovation/baas/environ/index.htm.



http://www.aicpa.org/news/relpty1.htm

http://www.deloitte.com/dtt/cda/doc/content/Impact_financialreporting(1).pdf

http://www.aicpa.org/innovation/baas/environ/index.htm

International Developments

On June 7, 2002, the EU adopted a regulation to require EU companies withlisted securities to follow IFRS in preparing their financial statements,beginning no later than 2005, or 2007 under certain circumstances.

Specifically, the regulation permits EU member countries to delay therequirement for companies that (1) have only publicly traded debt securitiesor (2) are listed both in the EU and on a non-EU exchange and follow anotherset of internationally accepted accounting standards for their primaryfinancial statements (e.g., EU companies listed in the United States that useU.S. generally accepted accounting principles for their primary financialstatements).

Further information about the EU and its activities is available on its website,http://www.europa.eu.int.

IASB and FASB Move Closer to Standards Convergence

The IASB and FASB issued a joint memorandum pledging to use their bestefforts to make existing international and U.S. accounting standards fullycompatible as soon as practicable and to ensure that compatibility, onceachieved, is maintained.

The memorandum's issuance followed decisions by both Boards to undertakea joint short-term project to eliminate certain identified differences betweentheir respective standards by late 2003. Under the memorandum, the Boardsagreed, "as a matter of high priority," to coordinate their future workprograms to eliminate any other differences remaining as of January 1, 2005,as well as to continue progress on their current joint projects.

The memorandum and a related press release are available on either theIASB's website at http://www.iasb.org.uk/cmt/0001.asp?s=1485978&sc=31340BCD-C602-4AAF-8F50-AFADC6834CC3&n=4119 or theFASB's website at http://www.fasb.org/news/nr102902.shtml.

EU Requires Listed Companies to Use IASB Standards

28


EU Requires Listed Companiesto Use IASB Standards

IASB and FASB Move Closer toStandards Convergence

Final IFRSs Issued

Exposure Drafts of IFRSOutstanding

Other IASB Projects inProgress

Financial Reporting on theInternet—Responsibilities ofDirectors and Management

FASB Developments

GASB Developments

SEC Developments

AICPA Developments

Appendix

Selected International Links

IASB Homepage:http://www.iasb.org.uk

Deloitte & Touche IASPlus Website:http://www.iasplus.com

http://www.europa.eu.int

http://www.iasb.org.uk/cmt/0001.asp?s=1485978&sc=31340BCD-C602-4AAF-8F50-AFADC6834CC3&n=4119

http://www.fasb.org/news/nr102902.shtml

http://www.iasb.org.uk

http://www.iasplus.com

29

Final IFRSs Issued

Amendment to IAS 19, Employee Benefits: The Asset Ceiling

This amendment was issued on May 31, 2002 to eliminate a conflict betweentwo provisions of IAS 19: (1) the option to defer actuarial gains and losses and(2) the limit on the amount that can be recognized as an asset (the "assetceiling").

The conflict had inadvertently permitted, in certain circumstances, anactuarial loss in an entity's pension plan to be reported as a gain in theentity's financial statements and, conversely, an actuarial gain in the pensionplan to be reported as a loss in the entity's financial statements. Under theamendment, it will not be possible to report gains or losses in the entity'sfinancial statements under these circumstances.

The amendment is effective for financial statements for fiscal periods endingon or after May 31, 2002, with earlier application encouraged.

Revised Preface to IFRS

The Preface was revised on May 23, 2002 to reflect various developmentssince the original Preface was released in 1982, including the issuance of theFramework for the Preparation and Presentation of Financial Statements and therevised IASB Constitution.

The revised Preface (1) describes the IASB's objectives and due process, aswell as the scope and authority of IFRS; (2) explains that IFRS are designed toapply to the general-purpose financial statements and other financialreporting of all profit-oriented entities; and (3) clarifies that paragraphs in thestandards section of IFRS set in plain type have the same authority as thoseset in bold type.

Exposure Drafts of IFRSs Outstanding

Business Combinations and Related Amendments

On December 5, 2002, the IASB issued an exposure draft of a proposed IFRS,Business Combinations, along with a companion exposure draft to reflectresulting proposed amendments to IAS No. 36, Impairment of Assets, and IASNo. 38, Intangible Assets.

Key Provisions

Key provisions of the exposure drafts are as follows:

• All business combinations, as defined, would be accounted for usingthe purchase method (i.e., the pooling of interests method would beprohibited).

• With one exception, any costs incurred to restructure the activities ofeither an acquired entity or the acquiring entity would be treated as




Final IFRSs Issued




FASB Developments

GASB Developments

SEC Developments

AICPA Developments

Appendix






30

post-combination expenses, rather than as part of the purchase priceallocation. The one exception is pre-existing liabilities of an acquiredentity for costs to restructure its activities.

• Acquired intangible items would be recognized as assets separatelyfrom goodwill if they (1) meet the definition of an asset and (2) areeither separable or arise from contractual or other legal rights.

• Identifiable assets acquired and liabilities and contingent liabilitiesassumed would be initially measured at fair value.

• Goodwill and intangible assets with indefinite useful lives would nolonger be amortized. Rather, they would be tested for impairmentannually, or more frequently if events or changes in circumstancesindicate a possible impairment

• In general, the final IFRS would apply to business combinationswhose “agreement date” is on or after the IFRS’s issuance date.

Other

Comments on the exposure drafts should be received by the IASB by April 4,2003.

A press release on the exposure drafts is available on the IASB's website athttp://www.iasb.org.uk/cmt/0001.asp?s=1664266&sc=C15781AA-DA1D-4394-8A39-AD061601AA78&n=4138. The exposure drafts themselves areavailable on the IASB's website at http://www.iasb.org.uk/cmt/0001.asp?s=1909635&sc=23037B4D-AD05-49FD-BE1F-09F24C4F97EC&n=67.

Stock-Based Compensation (Share-Based Payment)

On November 7, 2002, the IASB issued an exposure draft of a proposed IFRS,Share-based Payment (e.g., transactions in which companies issue shares oftheir stock, or options on such shares, to employees or others in exchange forgoods or services).

General Provisions of the Exposure Draft

In general, the exposure draft would require companies that prepare theirfinancial statements under IASB standards to recognize the fair value ofshare-based payments, including employee stock-based compensation, as anexpense. Current U.S. accounting standards, in contrast, permit companies toreport employee stock-based compensation in one of two ways:

1. The fair value based method, in which compensation cost ismeasured at the grant date based on the value of the award and isrecognized as expense over the service period, which is usually thevesting period, or

2. The intrinsic value based method (the predominant U.S. practice), inwhich compensation cost is measured as the amount by which thequoted market price of the stock at grant date exceeds the amount an




Final IFRSs Issued




FASB Developments

GASB Developments

SEC Developments

AICPA Developments

Appendix




http://www.iasb.org.uk/cmt/0001.asp?s=1664266&sc=C15781AA-DA1D-4394-8A39-AD061601AA78&n=4138

http://www.iasb.org.uk/cmt/0001.asp?s=1909635&sc=F8076FCB-01CF-4544-ADE0-166C2A120A4D&n=67



31

employee would have to pay to purchase it. Since fixed stock optionplans—the most common type of stock compensation plan—typicallyhave no intrinsic value at grant date, no compensation cost isrecognized.

A final IFRS would be effective for periods beginning on or after January 1, 2004.

Comments Sought

The exposure draft consists of three separate documents—the proposed IFRSitself, the IASB's basis for tentative conclusions, and draft implementationguidance. Comments on the documents should be received by the IASB byMarch 7, 2003.

[Editor's Note: This is a critical proposal on which U.S. companies may wishto comment because (1) the FASB has released an Invitation to Comment asthe first step in a possible redeliberation of the U.S. standards on accountingfor stock-based compensation with the aim of bringing about convergence ofaccounting standards across the major world capital markets, and (2) the SECmay ultimately accept financial statements prepared in accordance with IFRSas the primary reporting basis for at least certain registrants.]

The exposure draft and a related press release are available on the IASB'swebsite at http://www.iasb.org.uk/cmt/0001.asp?s=1595829&sc=43546E62-51EA-4875-AA0C-41989318C8C4&n=67 and http://www.iasb.org.uk/cmt/0001.asp?s=1526440&sc=5BE6A34B-4223-402E-BD18-C2B43AC97536&n=4120, respectively. Also see the related FASB article on stock-basedcompensation in this publication.

First-Time Application of IFRS

The IASB issued this exposure draft on July 31, 2002 to address mattersrelating to an entity's adoption of IFRS as its primary financial reportingbasis. These matters include determining and reporting the accountingeffects of changing from non-IFRS standards, comparability and consistency,cost-benefit considerations, and disclosures.

A final IFRS would be effective for financial statements for fiscal periodsbeginning on or after January 1, 2003, with earlier application encouraged.

The exposure draft can be obtained on the IASB's website athttp://www.iasb.org.uk/cmt/0001.asp?s=1101199&sc=B1C70EF1-6876-440C-890C-DC66E3A1D93C&n=67. The comment period has ended.

Financial Instruments

This exposure draft, issued on June 20, 2002, contains proposed amendmentsto IAS No. 32, Financial Instruments: Disclosure and Presentation, and IAS No.39, Financial Instruments: Recognition and Measurement, to provide additionalguidance, eliminate inconsistencies, and ease implementation. Specifically,the proposed amendments would:




Final IFRSs Issued




FASB Developments

GASB Developments

SEC Developments

AICPA Developments

Appendix




http://www.iasb.org.uk/cmt/0001.asp?s=1595829&sc=43546E62-51EA-4875-AA0C-41989318C8C4&n=67

http://www.iasb.org.uk/cmt/0001.asp?s=1526440&sc=5BE6A34B-4223-402E-BD18-C2B43AC97536 &n=4120

http://www.iasb.org.uk/cmt/0001.asp?s=1101199&sc=B1C70EF1-6876-440C-890C-DC66E3A1D93C&n=67



http://www.iasb.org.uk/cmt/0001.asp?s=1595829&sc=43546E62-51EA-4875-AA0C-41989318C8C4&n=67

http://www.iasb.org.uk/cmt/0001.asp?s=1526440&sc=5BE6A34B-4223-402E-BD18-C2B43AC97536 &n=4120,

http://www.iasb.org.uk/cmt/0001.asp?s=1526440&sc=5BE6A34B-4223-402E-BD18-C2B43AC97536 &n=4120,

32

• Allow an entity to designate any financial instrument (including itsown outstanding debt) irrevocably at initial recognition as aninstrument that is measured at fair value, with changes in fair valuerecognized in income

• Require that all fair value changes for available-for-sale financialinstruments be recognized as a separate component of equity, with anappropriate portion of those changes recognized in income when theinstrument is sold

• Add guidance for recognizing impairment losses in groups of loansor other financial assets

• Prohibit reversal of impairment losses previously recognized foravailable-for-sale financial assets

• Treat hedges of firm commitments as fair value hedges, rather thanas cash flow hedges

• Prohibit "basis adjustment" for hedges of forecasted transactions, butcontinue to require basis adjustment for fair value hedges

• Establish the principle of "no continuing involvement" for decidingwhether a financial asset should be derecognized. This principlewould prohibit entities from removing assets from their balancesheets to the extent that the entities (1) could, or could be required to,reacquire control of the transferred asset or (2) could receive, or berequired to pay, compensation based on the performance of the asset.

The effective date of a final IRFS has not yet been determined.

The exposure draft is available on the IASB website athttp://www.iasb.org.uk/docs/ias32-39/02-32_39-ed.pdf. The comment periodhas ended.

Improvements to International Accounting Standards

This exposure draft, issued on May 15, 2002, would amend 12 of the 34existing IAS to improve their clarity and consistency by resolving narrow, butsubstantial, practice issues. If adopted as proposed, the amendments would,among other things:

• Extend the existing definition of related parties to include jointventures and pension plans

• Prohibit items of income or expense from being labeled extraordinary

• Revise and expand existing guidance on the calculation of earningsper share

• Prohibit the use of the last-in, first-out (LIFO) method of inventorycosting

• Require voluntary changes in accounting policies and corrections oferrors to be accounted for by retroactive restatement of the financial




Final IFRSs Issued




FASB Developments

GASB Developments

SEC Developments

AICPA Developments

Appendix




http://www.iasb.org.uk/docs/ias32-39/02-32_39-ed.pdf



33

statements (under existing standards, such changes and correctionsmay be accounted for either retroactively or in current income)

• Provide guidance to entities whose managements conclude that strictcompliance with an IAS or Interpretation would violate local laws orresult in a misleading financial presentation

• Require disclosure of (1) critical judgments used by management inapplying accounting policies and (2) key assumptions made bymanagement about uncertainties that could cause materialadjustments in the carrying amounts of assets and liabilities.

The amendments would be effective for annual financial statements coveringperiods beginning on or after January 1, 2003, with earlier adoptionencouraged.

The exposure draft can be obtained on the IASB's website athttp://www.iasc.org.uk/docs/imp-02/02-imp-ed.pdf. The comment period hasended.

Other IASB Projects in Progress

Following are brief descriptions of IASB projects expected to result in theissuance of exposure drafts of IFRS in the near future. Further informationabout each project can be obtained on the IASB's website at the link indicated.

Disclosure and Presentation of Certain Activities by Financial Institutions

This project, a reconsideration of IAS No. 30, Disclosures in the FinancialStatements of Banks and Similar Financial Institutions, addresses disclosureand presentation in the financial statements of entities that perform deposit-taking, lending, or securities-business activities. The reconsideration wasdeemed necessary in light of the various accounting and businessdevelopments that have affected the financial services industry since IAS 30was issued in 1990. http://www.iasb.org.uk/docs/projects/deposit-ps.pdf

Insurance Contracts

Given that insurance is an increasingly global business and insuranceaccounting varies considerably across countries, this project seeks to developan IFRS on accounting for insurance contracts that is consistent with theIASB's conceptual framework definitions of assets and liabilities.http://www.iasb.org.uk/docs/projects/insurance1-ps.pdf

http://www.iasb.org.uk/docs/projects/insurance2-ps.pdf

Performance Reporting

This project broadly addresses the issues related to the display andpresentation in the financial statements of all recognized changes in anentity's assets and liabilities resulting from transactions or other events except




Final IFRSs Issued




FASB Developments

GASB Developments

SEC Developments

AICPA Developments

Appendix




http://www.iasc.org.uk/docs/imp-02/02-imp-ed.pdf

http://www.iasb.org.uk/docs/projects/deposit-ps.pdf





34




Final IFRSs Issued




FASB Developments

GASB Developments

SEC Developments

AICPA Developments

Appendix




those with the entity's owners (referred to as "comprehensive income" in theFASB literature). http://www.iasb.org.uk/docs/projects/rfp-ps.pdf

Financial Reporting on the Internet—Responsibilitiesof Directors and Management

This paper, issued on August 26, 2002 by the IFAC staff, suggests variouspolicies and procedures intended to help company officials ensure that anyfinancial information (e.g., financial statements) provided on their company'swebsite has the same integrity as any financial information published intraditional paper form. The suggested policies and procedures relate to suchmatters as:

• Types and format of financial information provided, as well aschanges in such information

• Differentiating between audited and non-audited financialinformation

• Use of hyperlinks

• Control issues, such as the approval of financial information to beprovided and website security.

The paper and a related press release are available on IFAC's website athttp://www.ifac.org/Store/Details.tmpl?SID=1030393082223229 andhttp://www.ifac.org/News/LastestReleases.tmpl?NID=1030395040224021&RanID=34162, respectively.



http://www.iasb.org.uk/docs/projects/rfp-ps.pdf

http://www.ifac.org/Store/Details.tmpl?SID=1030393082223229

http://www.ifac.org/News/LastestReleases.tmpl?NID=1030395040224021&RanID=34162

Appendix: Abbreviations

35

AcSEC Accounting Standards Executive Committee

AICPA American Institute of Certified Public Accountants

APB Accounting Principles Board

ARB Accounting Research Bulletin

EITF Emerging Issues Task Force

EU Council of the European Union

FASB Financial Accounting Standards Board

FRR Financial Reporting Release

GAAP Generally Accepted Accounting Principles

GASB Governmental Accounting Standards Board

IAS International Accounting Standard

IASB International Accounting Standards Board

IFAC International Federation of Accountants

IFRS International Financial Reporting Standard

MD&A Management’s Discussion and Analysis

Q&A Questions and Answers

SLB Staff Legal Bulletin

SAS Statement on Auditing Standards

SEC Securities and Exchange Commission

SFAS Statement of Financial Accounting Standards

SOP Statement of Position

SPE Special-Purpose Entity

TPA Technical Practice Aid

Deloitte Accounting Research Tool Available

Deloitte & Touche is making available, on a subscription basis, access to its online library of accounting andfinancial disclosure literature. Called the Deloitte Accounting Research Tool (DART), the library includes materialfrom the FASB, the EITF, the AICPA, and the SEC, in addition to Deloitte & Touche's own accounting manual andother interpretative accounting guidance.

Updated every business day, DART has an intuitive design and navigation system which, together with its powerfulsearch features, enable users to quickly locate information anytime, from any computer. Additionally, DARTsubscribers receive periodic e-mails highlighting recent additions to the DART library.

For more information, including subscription details and an online DART demonstration, visitwww.deloitte.com/us/dart.

© 2002 Deloitte & Touche LLP.Deloitte & Touche refers to Deloitte & Touche LLP andrelated entities.All rights reserved.

Deloitte & Touche, one of the nation’s leading professional services firms, provides assurance and advisory, tax, and managementconsulting services through nearly 30,000 people in more than 100 U.S. cities. The firm is dedicated to helping its clients and itspeople excel. Known as an employer of choice for innovative human resources programs, Deloitte & Touche has been recognized asone of the “100 Best Companies to Work For in America” by Fortune magazine for five consecutive years. Deloitte & Touche refers toDeloitte & Touche LLP and related entities. Deloitte & Touche is the U.S. national practice of Deloitte Touche Tohmatsu. DeloitteTouche Tohmatsu is a Swiss Verein, and each of its national practices is a separate and independent legal entity. For moreinformation, please visit Deloitte & Touche’s Web site at http:// www.us.deloitte.com.

http://www.deloitte.com1-800-871-2586

http://www.us.deloitte.com

http://www.deloitte.com

http://www.deloitte.com/us/dart

roundup yir final - ias pluspreface the year 2002 was an active one for accounting standards-setters...

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