SEC Accounting Bulletin; Audit Reforms; More

The Securities and Exchange Commission has issued new guidance on when financial services companies can include service fees in the value of loan commitments for accounting purposes.

The SEC published Staff Accounting Bulletin No. 109, Written Loan Commitments Recorded at Fair Value Through Earnings, which says financial institutions such as banks or others that write loans can include expected net future cash flows related to loan servicing activities in the fair value measurement of a written loan commitment.

SAB 109 revises earlier staff guidance contained in SAB 105, Application of Accounting Principles to Loan Commitments. The update reflects changes in accounting rules that have occurred since SAB 105 was issued in March 2004—specifically, the adoption of Financial Accounting Standard No. 156, Accounting for Servicing of Financial Assets, and FAS 159, The Fair Value Option for Financial Assets and Financial Liabilities.

Shelly Luisi, senior associate chief accountant at the SEC, says the guidance is not related to current market turmoil surrounding sub-prime lending. “This is completely unrelated to anything in the market,” she says. “It’s related to new standards that came out from [the Financial Accounting Standards Board]. It’s something we had planned to do.”

Tom Rees, director at FTI Consulting, says FAS 156 and FAS 159 diverged from the views contained in SAB 105, so the SEC’s recent guidance is simply to make its opinions consistent with the new standards. Before FAS 156 was adopted in 2006 and FAS 159 was adopted earlier this year, the SEC staff held in SAB 105 that servicing should not be reflected at the time a loan commitment is made, Rees explains.

FAS 156 and 159 are both accounting standards calling for more use of fair value in accounting, including the measurement of loan servicing. “This is consistent with the migration toward fair value accounting,” he says.

Audit Profession Advisory Panel Seeks Input

The brand new Advisory Committee on the Auditing Profession assembled by the U.S. Treasury Department has published a discussion outline asking for public comment on a broad range of audit issues.

Written by committee co-chairs Arthur Levitt (SEC chairman in the Clinton Administration) and Donald Nicolaisen (former chief accountant at the SEC), the outline includes a long list of audit issues and potential consideration points that the committee may evaluate. Levitt and Nicolaisen wanted to publish the outline to get input on the issues the committee proposes to consider, according to the release.

Levitt

The committee was established in July to provide advice and recommendations to the Treasury Department on how to sustain a strong and vibrant auditing profession. The committee adopted bylaws and procedures compelling it to consider areas such as the ability of the profession to cultivate, attract, and retain workers necessary to meet market demands; competition among audit firms and concentration of talent at only a few firms; the effect of auditor independence requirements; and the organizational structure, financial resources, and communication of the auditing profession.

The outline the advisory committee proposes to follow covers a broad collection of audit profession issues: staffing, training, education, licensing, governance, organizational structure, liability, insurability, competition, independence, globalization, regulation, standards, resources, communication, and financial resources, among others.

Turner

“I would certainly hope the committee is able to get a significant amount of public input from investors for whom audits are performed, both here in the U.S. and abroad,” says Lynn Turner, another former SEC chief accountant. “Input from smaller firms would also be especially beneficial, as this is a group not often heard from.”

Comments on the outline are due Nov. 30.

AICPA Publishes Views on SEC Staff Doings

The American Institute of Certified Public Accountants has published a series of comments reacting to recent SEC staffers’ pronouncements on a few narrow accounting issues.

The AICPA’s SEC Regulations Committee published five discussion documents, reflecting conversations the committee had during an Oct. 11 meeting with SEC staff. The documents address issues such as how to view financial statement requirements in the context of a merger or acquisition when the buyer and the target company have different fiscal years and how to comply with financial information requirements in registration statements when there are retrospective accounting changes as a result of adopting new accounting rules.

“Discussion documents tend to be very narrow issues focused on the details of the SEC’s rules governing financial information,” says Amy Ripepi, managing director for Financial Reporting Advisors and a member of the SEC Regulations Committee. “While obviously every issue has an audience, the vast majority of issues have a very small audience.”

Ripepi

Committee meetings have served as the launch point for information of more broad interest, such as when the SEC staff has offered some disclosure expectations related to adoption of Financial Interpretation No. 48: Accounting for Uncertainty in Income Taxes. Ripepi says the issues raised and addressed by the SEC staff at the October meeting were more narrow, however, and likely of interest to only very small audiences.

The SEC Regulations Committee meets about three times annually with SEC staff to discuss emerging technical accounting and reporting issues relating to SEC rules and regulations. The discussion documents summarize the issues discussed at the meetings, but are not regarded as authoritative guidance.