FASB Withdraws Single Income Statement Proposal; More

Derailed by its international counterpart’s change of course, the Financial Accounting Standards Board has put off a planned controversial proposal that would have required companies to present all income in a single statement of comprehensive income.

The plan is not dead, however, but placed on hold pending further board determinations about how it and the International Accounting Standards Board want to change the overall approach to financial performance reporting.

FASB and IASB are reviewing income statement requirements among numerous other topics in their joint project on financial performance reporting. In April, both boards indicated they want to move companies away from the current allowance to present income in two separate statements, consolidating all items of revenue and expense onto a single statement of income.

In November, however, IASB backpedaled slightly and decided it will issue an exposure draft amending its International Accounting Standard No. 1, Presentation of Financial Statements, to state a preference for a single statement, but not a requirement. It expects to publish its exposure draft in the first quarter of 2006.

That prompted FASB recently to hold off on its parallel exposure draft amending Statement No. 130 Reporting Comprehensive Income.

Sullivan

“Our Statement 130 already requires other comprehensive income” to be shown with income instead of equity, said Jenni Sullivan, FASB project manager. “With theirs [IAS No. 1], OCI goes to equity, so they need to make that transitional step before they’re ready to jump to a single statement.”

“Other comprehensive income” includes not only income from operations, but also the effects of unrealized gains and losses from available-for-sale securities, cash flow hedge, foreign currency hedges, as well as unrealized pension costs.

A source close to the IASB deliberation process said the board still wants to move to a single statement but bowed to constituent pressure to back away for the moment. Sullivan said FASB still plans to address the single statement requirement as it moves forward in its deliberations, but chose to hold off for now at least in part to move forward with IASB in a more unified way.

FASB is hearing feedback from both preparers and analysts supporting and discouraging the single statement, Sullivan said. Analysts tend to prefer a single statement because it puts all relevant income figures on a single page. Preparers, however, tend to prefer the placement of other comprehensive income on a separate statement to avoid detracting from the net income figure, she said. “Some preparers are worried that if they put their OCI numbers with net income, they’ll get more questions from analysts.”

Despite IASB’s change of course, Sullivan said FASB is not deterred from its plans to eventually require a single statement. “This is an evolutionary process,” she said. “The push for a single statement is still the objective” as the project continues.

New Technical Practice Aids on Loans, Debts Securities

Accountants got some new guidance from their professional association, the American Institute of Certified Public Accountants, on how to apply the requirements of its position on accounting for debts and other securities acquired in a transfer.

The guidance is not authoritative, so it creates no new Generally Accepted Accounting Principles, said Myrna Parker of the AICPA. Issued as “technical practice aids,” the 11-page guidance seeks to answer questions that have surfaced since AICPA issued its Statement of Position No. 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer.

The statement was controversial when it was published, Parker said, because it doesn’t allow loan losses to be carried over when loans are acquired. It was issued in December, 2003, and became effective for loan acquired in fiscal years beginning after Dec. 15, 2004.

The technical practice aids address questions surrounding instruments that are measured like debt securities, assessing delays and shortfalls relative to the requirements, evidence of credit quality and probable deficiency, non-accrual loans, loans held for sale, treatment of commercial revolving loans and other issues.

They can be downloaded from the box above, right.

European Union Creates PCAOB-Like Auditor Oversight Board

The European Union has created an audit oversight body that will serve as it advisory arm on the adoption and implementation of new audit rules in Europe.

The European Group of Auditors’ Oversight Bodies will coordinate oversight systems for auditors and audit firms among the EU’s 25 member states. The body was formed following the EU’s adoption in October of the 8th Company Law Directive, which requires EU member states to set up such public oversight systems and streamline audit functions. The Directive also introduces a requirement for external quality assurance, streamlines auditor independence rules, and requires companies to establish an audit committee.

In addition to overseeing the implementation of new audit oversight rules, the EGAOB will serve as an advisory body to the European Commission on the adoption of auditing standards, quality assurance, and relations with third-party countries and cross-border inspections. The EU names the Public Company Accounting Oversight Board in the U.S. as an example of a third-country regulator with which it aims for “effective and balanced cooperation” with the new Directive.