Long anticipated guidance on how to scale the market’s most accepted internal control framework to a small-company setting is now targeted for “mid-October,” perhaps Oct. 18, according to Joseph Carcello, director of research for the University of Tennessee’s Corporate Governance Center and a member of the task force drafting the new guidance.
Carcello
The Committee of Sponsoring Organizations of the Treadway Commission is acting at the behest of the Securities and Exchange Commission to adapt its ubiquitous Internal Control—Integrated Framework so that it is more applicable to smaller companies. Announced in January, COSO officials originally projected its release for public comment in June, then pushed back the targeted date several times.
Smaller companies are awaiting the release of the guidance to help them comply with the internal control provisions of The Sarbanes-Oxley Act. The COSO delay even played a role in the recent SEC decision to delay internal control reporting requirements for smaller companies for another year, to begin with companies’ first fiscal year ending on or after July 15, 2007 (see related coverage at right).
Carcello said in July that COSO and the task force member were trying to balance the market’s need for the guidance with the need to get it right. “There’s a tension here,” he said then. “We want to get the guidance out as quickly as possible, but on the other hand we want the guidance to be helpful. COSO can’t stop time.”
FASB Adjusts EPS Calculations, Aligns With IFRS
The Financial Accounting Standards Board is tweaking the fine points of how to calculate earnings per share in light of newer hybrid financial instruments and changing international standards.
FASB issued its revised proposed standard on EPS, which would amend its existing EPS statement, No. 128, and is seeking comments through Nov. 30. The revised document represents the ongoing effort with the International Accounting Standards Board to more closely align U.S. and international rules to make cross-border reporting more comparable. It also clarifies how to compute EPS for certain hybrid instruments, like mandatorily convertible instruments and contractual obligations that may be settled with cash or by issuing shares.
Crooch
FASB member G. Michael Crooch said the document, a revision of an exposure draft first issued in December 2003, improves EPS reporting because it “simplifies the existing guidance and produces similar earnings per share results for economically similar situations.”
Crooch said it also eliminates differences between FASB’s existing EPS rules, as spelled out in Statement No. 128, and comparable International Financial Reporting Standards, which are now required for all companies listed on European Union exchanges.
The changes in the revised EPS statement do not represent a significant departure from current accounting practices, said Paul Bahnson, professor of accounting at Boise State University and a former FASB member. “I would call these housekeeping measures to make U.S. accounting more congruent with international accounting,” he said. “These are minor adjustments.”
Rental Costs During Construction Must Be Expensed
FASB has finalized its staff position clarifying that rental costs incurred at the outset of a lease to facilitate construction must be expensed as incurred, not capitalized.
“There is no distinction between the right to use a leased asset during the construction period and the right to use that asset after the construction period,” FASB staff wrote in the final position. “The rental costs shall be included in income from continuing operations.”
The guidance is effective with the first reporting period beginning after Dec. 15, 2005, but FASB is encouraging early adoption and even retrospective application.
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