FASB on Balance Sheet Reforms; More

The Financial Accounting Standards Board has agreed to stall some reforms meant to clean up off-balance-sheet accounting, a reluctant admission that the Board can’t move quickly enough to fix the problem by 2009 as originally planned.

FASB voted last week to revise the planned time lines around amendments to Financial Accounting Standard No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and Financial Interpretation No. 46R, Consolidation of Variable Interest Entities. Changes will now probably take effect with the beginning of 2010 fiscal years for most entities.

FAS 140 revisions will focus on eliminating the concept of a “qualified” special purpose entity, which lets financial institutions and other companies keep securitized assets off the balance sheet if they met certain tests for establishing a transfer to another entity. Changes to FIN 46R will add rigor to the requirements specifying when a company must consolidate a special-purpose entity onto its balance sheet.

FASB members conceded they can’t get the amendments done quickly enough to take effect with the beginning of 2009 as they hoped, but that doesn’t mean the amendments themselves will be derailed. The Board still plans to require that some new disclosures take effect with the beginning of 2009 around variable-interest entities and off-balance-sheet activities at least to give more exposure to the risks.

The American Securitization Forum in particular lobbied FASB to ease the pace of change and plan to allow another year before any changes take effect.

“The bottom line is we are very much encouraging them to take additional time to develop revised standards and not push the projects forward to completion or effective date by the end of the year,” says George Miller, executive director of the American Securitization Forum. “We believe strongly that additional time is necessary to develop a logical, coherent, and operational standard.”

Herz

At last week’s meeting, FASB Chairman Robert Herz said he was “chagrined” by requests for a one-year deferral in light of financial reporting made by “certain large financial institutions that did not live up to the needs or desires of the investment community or the public in general.”

Herz admitted the accounting rules need work, but said he’s disappointed by the extent to which the concept of the QSPE has been stretched to abuse.

FASB member Tom Linsmeier said the delay does not signal a retreat on the coming changes for FAS 140 and FIN 46R. “It does not change my view remotely that we need to get new standards in effect that can be implemented well as soon as possible,” he said. “If people are here to slow us down with their comment letters, I’m not interested in having us slow down … I will be the one pushing forward, not entertaining much sympathy for constant comment letters saying defer, defer, defer.”

Deloitte Says Universities Moving on IFRS

Only two months after launching a consortium to assist colleges and universities with teaching international accounting standards, Deloitte & Touche already has 100 institutions signed on to use the teaching materials.

Through its International Financial Reporting Standards University Consortium, Deloitte is providing materials that will fill 40 hours of instructional time—lecture notes, case studies, case solutions, and other materials—to help universities infuse IFRS into college degree programs. The course materials have already been delivered to Ohio States University, one of the founding universities in the consortium; other universities will start receiving materials in a few weeks, Deloitte says.

Gannon

“The academic community is now starting to realize this notion that IFRS is becoming inevitable,” says D.J. Gannon, head of Deloitte’s IFRS Center of Excellence in the United States. “They need to act. This will get them up to speed and get IFRS materials into their hands.”

Gannon says Deloitte is hoping to offer a Webcast for professors to introduce them to the materials, but the package can be put into classrooms without that brush-up. “It’s pretty much ready to go,” he says. “There are no incremental things schools have to do to get it operating.”

Richard Dietrich, chairman of Ohio State’s accounting department, said in a statement that the materials will help to develop IFRS knowledge in universities. “There is no substitute for real-world examples in the classroom,” he said.

Sam Hicks, associate professor at Virginia Tech, said the materials will let the university begin incorporating IFRS into lectures this academic year.

PCAOB Adopts Rules to Ease Firm Transitions

The Public Company Accounting Oversight Board has adopted new rules that make it easier for an audit firm to continue functioning in the midst of a merger, acquisition, or other event that affects its registration status.

Registration with the PCAOB is a required step under the Sarbanes-Oxley Act before a firm can provide audit services to a publicly listed company. Registration involves an application and fee, then a review by the Board before a firm is permitted to provide audit services. More than 1,800 firms currently are registered with the PCAOB.

The rules adopted by the PCAOB spell out the circumstances when an entity can continue to provide audit services while it completes an acquisition or merger that might otherwise alter its registration status, and therefore its eligibility to provide public auditing services.

Olson

PCAOB Chairman Mark Olson says the rule is intended to allow registered firms to continue providing audit services without a break in their PCAOB registration status when there has been some change in legal form. “The rules would provide flexibility that is important given the serious implications of a firm operating without registration,” he said in a statement.

The Securities and Exchange Commission must approve the rule before it can become effective.

CAQ: Investor Confidence Staggers, but Survives

Investors are less confident in U.S. capital markets than they were a year earlier, thanks to rising fuel costs, increasing home foreclosures, and a weak dollar—but the Center for Audit Quality sees a silver lining.

A “significant majority” of investors—70 percent, to be precise—still expressed confidence in U.S. capital markets, according to the CAQ’s second annual investor confidence poll. That’s down from 84 percent in the July 2007 poll, taken just before the public began witnessing the free fall in credit and mortgage markets.

Fornelli

Cindy Fornelli, executive director of the CAQ, says public confidence in audited financial statements remains high at 73 percent. That’s down from 80 percent one year ago, but the CAQ attributes that to an overall weakening of market conditions. The CAQ says three-fourths of poll respondents also remain confident about investing in publicly traded U.S. companies.

“Obviously we’d like the marketplace to have 100 percent confidence,” Fornelli says. “The numbers have gone down a bit over last year, but not as significantly as the overall loss of confidence in the marketplace.”