The PCAOB proposes changes to the Auditor's reporting model

In the drive for greater transparency in financial reporting, the Public Company Accounting Oversight Board (PCAOB) has issued a proposal to enhance audit reports by identifying and reporting on critical audit issues as part of a company's audit.  An article in the Journal of Accountancy identifies four key areas of focus for the proposed standards:

• A statement of auditor independence. This would explain that the auditor is a public accounting firm registered with the PCAOB and is required to be independent with respect to the company.
• Tenure disclosure. The audit firm would disclose the year it began serving as a company’s auditor.
• Other information explanation. The auditor would be required to describe the procedures and evaluation the firm performed on other types of information included in the annual report outside the financial statements.
• Language enhancements. These would change existing language in the auditor’s report related to the auditor’s responsibilities for fraud and notes to the financial statements.

A key component of the proposal would be the requirement to identify and report on critical audit matters, which are defined as matters addressed during the audit that:

• Involved the most difficult, subjective, or complex auditor judgments;
• Posed the most difficulty to the auditor in obtaining sufficient appropriate evidence; or
• Posed the most difficulty to the auditor in forming an opinion on the financial statements.

When critical audit matters are determined, auditors would be required in their report to:

• Identify the critical audit matter.
• Describe the considerations or reasons that the matter was identified as critical.
• Refer to the relevant financial statement accounts and disclosures that relate to the critical audit matter, when applicable.

Among the other requirements, auditors would be required to evaluate the company's 10-K filing and review selected financial data as well as the Management Discussion & Analysis. 

FASB, IASB to Work on Classification and Measurement of Financial Instruments

As part of the ongoing effort at reporting convergence between FASB and IASB, the Boards will look at the issue of financial instrument classification and measurement.  The Journal of Accountancy has a brief article on topic:  An excerpt is shown below:

FASB and the International Accounting Standards Board (IASB) are working together to reduce differences in their respective classification and measurement models for financial instruments.

The boards announced Friday that they will explore these models jointly, then decide whether to propose amendments to IFRS and U.S. GAAP.

These discussions will take place as part of FASB’s ongoing reconsideration of a Proposed Accounting Standards Update (ASU) on financial instruments. The Proposed ASU, Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities—Financial Instruments (Topic 825) and Derivatives and Hedging (Topic 815), was originally issued in May 2010. The IASB will take the discussions with FASB into consideration in its project to make limited changes to IFRS 9, Financial Instruments, which was issued in November 2009. The IASB’s project was amended in 2010 as a result of its ongoing work to develop a new IFRS on insurance contracts and feedback received on how IFRS 9 applies to particular instruments.

Here's the link to the article:  FASB, IASB to Work on Classification and Measurement of Financial Instruments.

Companies not eager to convert to IFRS

A new survey out by KPMG and the Financial Executives Institute reveals that companies don't plan to convert to IFRS until they have to, even if there is an early adoption period.  The survey polled 900 accounting and finance executives.  Here are some of the highlights:

• 75% of companies said they would wait until they were forced to convert before the did so,
• Only about half the respondents expect the SEC to make a decision in 2011, which is the published timeline for making that decision,
• 65% of executives are worried about implementation costs,
• 88% believe the adoption of IFRS by the United States will increase comparability of financial statements around the world,
• 57% say that the convergence of U.S. GAAP and IFRS is the best approach,
• Only 30% would like to see the U.S. establish a specific date for adoption

You can read the full article here: Ready But Not Eager for IFRS

Many oppose FASB proposal for Loan Mark-to-Market

Reuters is reporting that comments regarding an expansion of the Mark-to-Market rules for loans is running heavily against the proposal.  The expansion would impact loans and other financial instruments.

An exceprt from the article:

The banking industry has opposed the measure, saying it does not make sense to assign market prices to loans that will never be sold.

"Thus far, I think the count is up to about 1,500 or so comment letters," said Lawrence Smith, a board member of FASB, which sets U.S. accounting rules. "I think I've read one that supports what we propose."

One of the considerations impacting this proposal is the goal of FASB to achieve convergence with the IASB.  Mark-to-market accounting is one area where the two governing bodies differ.  The IASB has loans valued at amortized cost.

Vietnam modifies accounting rules for financial reporting

Vietnam, like a number of developing countries, has been struggling with a significant decline in Foreign Direct Investment (FDI) due to the global economic slowdown.  According to the source Vietnam Briefing, the country in 2009 experienced a 70% decline in FDI relative to 2008.  It should be noted that 2008 represented a banner year in Vietnam for FDI as it reached $64 billion USD, up from around $20 billion USD in 2007.  All of these numbers represent pledged FDI and not actual capital disbursements.

As a way of strengthening its accounting system and to make the country more friendly to FDI, the Vietnamese Ministry of Finance is allowing foreign companies to choose the currency they use to transact business.  Previously they had to report in the Vietnamese dong and file with the government for permission to use a different currency.  These companies now have more flexibility in the base currency for reporting but the chosen currency must be one predominately used for banking transactions and for price quotations.

Read the full article on Vietnam's accounting rule change for financial reporting.