FRC and SBC are working hard

Strategic Finance, August, 2008 by Linda Devonish- Mills

One of the most rewarding experiences in my role with IMA's professional advocacy efforts is my interaction with members who serve on the Financial Reporting and Small Business Financial and Regulatory Affairs Committees (FRC and SBC). Beginning with this article, I plan to provide regular updates about the activities of both committees. The FRC has been the "technical spokesperson" for IMA for many years, following up on issues addressed by the Financial Accounting Standards Board (FASB), Securities & Exchange Commission (SEC), and the International Accounting Standards Board (IASB). My vision for the SBC is that it will complement the work done by the FRC by addressing issues related to small and medium-sized entities.

FRC Update

The FRC held its annual Washington, D.C., meeting June 9-10, 2008, to meet with staff from the SEC. I was impressed that SEC Chief Accountant Conrad Hewitt and some of his staff took the time to attend the meeting. This type of commitment shows that the FRC has established a reputation over the years as being a very influential and knowledgeable group of accounting and finance professionals. They do a great deal of preparation to determine what topics should be discussed with SEC staff, which also helps.

The following SEC staff members attended the meeting: Chief Accountant Conrad Hewitt; Jim Kroeker, deputy chief accountant; Julie Erhardt, deputy chief accountant (primarily international affairs); and Paul Beswick, senior advisor.

The discussion with the SEC staff began with a general overview of what is going on at the Commission. At the time, there were only three commissioners on board instead of the usual five, so it was important to prioritize agenda items carefully because of the fewer number of commissioners. The SEC's current focus has been on issues related to fair value, and staff meetings have been conducted bi-weekly to keep everyone abreast of all issues related to that topic. On another matter, the Treasury Committee will release a final report on the audit profession next month. The focus of the report will be on liabilities facing the audit profession.

Here are summaries of some of the topics the SEC staff discussed with the FRC:

CIFiR update--The SEC's Committee on Improvements to Financial Reporting (CIFiR) was established during the summer of 2007. Its mission is to examine the U.S. financial reporting system and find ways to reduce unnecessary complexity and make information more useful and understandable for investors. After receiving comments from constituents, the Committee and its four subcommittees have submitted preliminary recommendations on these topics for the Commission's approval. The FRC submitted two comment letters related to CIFiR's recommendations, and some members have participated in subcommittee hearings.

Final subcommittee meetings took place during June 2008, and final recommendations were scheduled to be presented for a vote by the SEC at the end of July. The term for CIFiR ends this month.

XBRL update--In June, the SEC hosted an International Roundtable on Interactive Data, and a new office that will focus on interactive disclosures has been developed within the Office of the Chief Accountant. One of the four new staff members will be an XBRL expert. The goal is to increase the staff to 12. The Commission's challenge will be finding XBRL experts to fill the available positions.

Also, the SEC issued a proposed rule on May 30, 2008, that suggests mandating XBRL filings for large and small companies and is encouraging constituents to submit comments since the proposal asks a number of questions related to interactive data. The Commission has found that international countries seem to be more advanced than the U.S. with the use of XBRL. For example, Japan requires XBRL filings.

FRC member Doug Tanner asked how XBRL will impact the FASB's Financial Statement Presentation project. The response was that XBRL-US and the FASB are working together to make it seamless to adopt or take into consideration new standards and pronouncements, which may result in a more "free-form" format for companies to submit their filings to the SEC. FRC member Randy Shearer expressed concerns about how MD&A (Management Discussion & Analysis) information will be treated in XBRL in terms of comparability. The SEC staff indicated that nothing more can be done than creating a broader framework to deal with comparability issues.

IFRS update--In November 2007, the SEC voted unanimously to exempt foreign private issuers (FPIs) from preparing a reconciliation of International Financial Reporting Standards (IFRS) to U.S. Generally Accepted Accounting Principles (GAAP). Sixty FPIs filed their financials with the SEC during 2008 without submitting a U.S. GAAP reconciliation. The new roadmap for U.S. companies using IFRS is still in progress because of the limited number of commissioners. Staff Accounting Bulletins (SABs) about audit issues and independence won't be impacted by IFRS applications.