KPMG's Defining
Issues
Click below to read Defining Issues, a publication of KPMG's Department
of Professional Practice. Defining Issues provides developments
in financial reporting, including developments that impact audit
committees.
Revised Executive Compensation Disclosure for Stock and Option Awards
This edition of KPMG's Defining Issues describes newly adopted amendments to the SEC’s requirements for executive compensation disclosures that more closely align what is disclosed to the amounts reported in the financial statements, reflecting earned compensation for the service period as reported in the financial statements rather than the aggregate grant-date fair value of the awards.
Proposed SEC and PCAOB Guidance on Internal Control Over Financial
This edition of KPMG's Defining Issues describes proposed SEC interpretive guidance for management on evaluating internal control over financial reporting, the Public Company Accounting Oversight Board’s proposed requirements for audits of internal control over financial reporting, and postponements of the compliance deadline on internal control over financial reporting for non-accelerated filers and newly public companies.
More Pension Obligations To Be Recognized on Balance Sheets
This edition of KPMG's Defining Issues describes
new FASB Statement 158, which requires employers to recognize on
their balance sheets the funded status of pension and other postretirement
benefit plans—as of December 31, 2006 for calendar-year public
companies. Employers will recognize actuarial gains and losses,
prior service cost, and any remaining transition amounts from the
initial application of Statements 87 and 106 when recognizing a
plan’s funded status, with the offset to accumulated other
comprehensive income. Many employers that sponsor defined benefit
plans could therefore report significantly increased liabilities,
with corresponding reductions in equity.
SEC Staff Views on Accounting Consequences of Prior Stock
Option Granting Practices
This edition of KPMG's Defining Issues describes
a public letter expressing SEC staff views on the effects on accounting
for stock-based awards when registrants may have used inappropriate
measurement dates and therefore misstated stock-compensation cost.
The letter focuses primarily on the accounting consequences for
periods in which companies applied Opinion 25 and Interpretation
44, but acknowledges that these practices could have consequences
for information reported under Statement 123.
SEC Staff Guidance on Quantifying
Financial Statement Misstatements
This edition of KPMG's Defining Issues describes a new SEC Staff Accounting Bulletin that addresses how the effects of prior-year uncorrected misstatements should be considered when quantifying misstatements in current-year financial statements. The SAB requires registrants to quantify errors using both the balance-sheet and income-statement approaches and to evaluate whether either approach results in quantifying an misstatements that is material in light of relevant quantitative and qualitative factors.
SEC Adopts Revised Executive Compensation Disclosures
This edition of KPMG's Defining Issues describes new SEC
rules that require companies to report more data on executive and
director compensation, including the total annual compensation of
the principal executive and financial officers, the three other
highest paid executive officers, and the company’s directors.
The new rules also revise the guidance on identifying perquisites
and the disclosure requirements for “related person”
transactions, officers’ and directors’ equity ownership,
director independence, and the functions of board committees.
Proposed
and Final Rules to Postpone Section 404 Internal-Control Reporting
for Selected Filers
This edition of KPMG's Defining Issues describes a new SEC rule
proposal that would postpone the Section 404 requirement for non-accelerated
filers to report on management’s assessment of internal control
over financial reporting and would postpone the related audit requirement
even further. The proposal would change the date by which newly
public companies would be required to comply with Section 404. This
edition also describes a simultaneously issued final rule that defers
the requirement to provide an audit report on internal control over
financial reporting for certain foreign private issuers.
Final
Statement on Pension Accounting Expected Next Month
This edition of KPMG's Defining Issues describes the main provisions of a coming FASB Statement that will require employers to recognize on the balance sheet the funded status of defined-benefit pension and other postretirement benefit plans, based on the FASB’s completed deliberations. The Statement is expected to be issued in September, and if so, calendar-year public companies will have to apply the funded-status requirement when preparing December 31, 2006 balance sheets.
Accounting for Income Tax Uncertainties
This edition of KPMG's Defining Issues describes new FASB Interpretation
48, which defines the threshold for recognizing the benefits of
tax-return positions in the financial statements as “more-likely-than-not”
to be sustained by the taxing authority and will affect many companies’
reported results and their disclosures of uncertain tax positions.
This edition also describes a newly released FASB Staff Position
that requires lessors to apply the Interpretation 48 model in determining
the timing and amount of expected tax cash flows in leveraged-lease
calculations.
Guidance
on Section 404 Compliance
This edition of KPMG's Defining Issues describes both an SEC Concept
Release that is a first step toward new guidance for management
on complying with the assessment requirements on internal control
over financial reporting and COSO’s introduction of new guidance
to help smaller public companies with compliance.
Proposal
to Enhance the FASB's Consideration of Private-Company Financial
Reporting
This edition of KPMG's Defining Issues describes a joint proposal by the FASB and AICPA to create a new committee that would make recommendations to help the FASB determine whether accounting requirements for private companiess should differ from those for public companies, one of several proposed enhancements in the standard-setting process that are intended to improve and encourage input from private-company constituents.
SEC
Plans on Section 404 Reporting
This edition of KPMG's Defining Issues describes recently announced
SEC plans to develop new guidance on management assessments of internal
control over financial reporting and to take other steps to improve
the efficiency of the Sarbanes-Oxley Section 404 reporting process.
It also describes the related PCAOB plan to improve auditors’
implementation of the requirements for audits of internal control
over financial reporting.
New
Disclosures About Tax Uncertainties
This edition of KPMG's Defining Issues reports FASB’s decision
yesterday to require additional quantitative and qualitative disclosures
about uncertain tax positions. The new disclosures will provide
more information on uncertain tax positions than would have been
required by the FASB’s 2005 proposal. A final Interpretation
is expected to be issued in June and would apply beginning in 2007.
SEC
Approves PCAOB Rules on Auditor Independence
This edition of KPMG's Defining Issues describes SEC-approved PCAOB
rules on auditor independence that affect how public-company audit
committees fulfill their responsibilities under the Sarbanes-Oxley
Act and SEC regulations. The new rules limit the types of tax services
independent auditors may provide to their SEC audit clients, prohibit
tax services to specified individuals associated with an audit client,
and expand auditors’ communications to audit committees about
permitted tax services. The requirements have varying effective
dates, but some are effective immediately. .
Proposed
Accounting for Pension and Other Postretirement Benefits
This edition of KPMG's Defining Issues describes an FASB proposal
that would require companies to report on their balance sheets the
funded status of pension and other postretirement benefit plans.
The proposal would also require companies to measure plan assets
and obligations as of the employer’s balance-sheet date. Comments
on the proposal are due to the FASB by May 31, 2006.
FASB
Statement on Servicing Rights
This edition of KPMG's Defining Issues describes the provisions
of FASB Statement 156 on accounting for servicing rights and explains
how the Statement enables companies to use mark-to-market accounting
for servicing rights resulting in reporting that is similar to fair-value
hedge accounting, but without the effort and system costs needed
to identify effective hedging instruments and document hedging relationships.
The Statement must be adopted in the first quarter of 2006 in order
to apply its fair-value-measurement alternative in 2006.
An
Accounting Alternative for Financial Instruments with Embedded Derivatives
This edition of KPMG's Defining Issues describes the main features
of new FASB Statement 155 on financial instruments with embedded
derivatives that would require separate accounting under Statement
133. The Statement allows companies to measure at fair value entire
financial instruments containing those kinds of embedded derivatives,
providing an alternative similar to what would also be available
if the FASB adopts its broader proposal called the Fair Value Option.
In addition, Statement 155 requires companies to identify interests
in securitized financial assets that are freestanding derivatives
or contain embedded derivatives that would have to be accounted
for separately, clarifies which interest- and principal-only strips
are subject to Statement 133, and amends Statement 140 to revise
the conditions of a qualifying special purpose entity due to the
new requirement to identify whether interests in securitized financial
assets are freestanding derivatives or contain embedded derivatives.
Trends
and Challenges in U.S. Standard Setting
This edition of KPMG's Defining Issues identifies some of
the more significant trends and challenges in setting U.S. GAAP,
including the FASB’s efforts to simplify GAAP, to require
more fair-value measurements in the financial statements, and to
cooperate with the IASB to reduce differences between U.S. and international
accounting standards.
Proposal
to Permit Companies to Decide Whether to Measure Financial Assets
and Liabilities at Fair Value
This edition of KPMG's Defining Issues describes a proposed FASB Statement that would allow companies to elect, on a contract-by-contract basis, to measure most types of financial assets and liabilities at fair value, with changes in fair value recognized in earnings each reporting period.
Revised
Statement 123R Classification Requirements for Contingently Cash-Settleable
Options and Related Guidance for Public Companies
This edition of KPMG's Defining Issues describes a new FASB Staff Position that requires companies that grant share options and similar instruments with contingent cash-settlement provisions as employee compensation to consider the probability that an event that could require cash settlement will occur when classifying the instruments as liabilities or equity. This edition also describes requirements in EITF D-98 to determine whether to classify outside of permanent equity some amount for share-based instruments with contingent cash-settlement features that are beyond the company’s control.
SEC
Proposes Revised Executive Compensation Disclosures
This edition of KPMG's Defining Issues describes requirements proposed by the SEC to report in 2007 proxy materials more data on executive compensation, including figures for total annual compensation. The proposal would also revise the guidance on identifying perquisites and the disclosure requirements for related-party transactions, director compensation, officers’ and directors’ security ownership, director independence, and other specifics of corporate governance.
Potential
Revision of Statement 123R’s Classification Requirements for
Contingently Cash-Settleable Share Options
This edition of KPMG's Defining Issues reports the FASB’s
decision yesterday to develop a Staff Position on classifying share
options and similar instruments granted as employee compensation
that require cash settlement when a contingent event occurs. The
planned Staff Position would require companies to incorporate an
assessment of the contingent event’s probability of occurrence
in determining the appropriate classification for share options,
which would effectively retain the pre-Statement 123R classification
approach to these instruments.
|
