Current Developments at the SEC The Sixth Annual Financial Reporting Conference Baruch College May 3

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Current Developments at the SEC The Sixth Annual
Financial Reporting ConferenceBaruch CollegeMay
3, 2007

Carol Stacey Chief Accountant Division of
Corporation Finance
The Securities and Exchange Commission, as a
matter of policy, disclaims responsibility for
any private publication or statement by any of
its employees. Therefore the views expressed
herein are those of the author and do not
necessarily reflect the views of the Commission
or the other members of the staff of the
Commission.
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Agenda

• Rulemaking, etc.
• Update on Corp Fin Periodic Reviews
• A Sampling of Accounting, Disclosure, and
  Reporting Issues

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Rulemaking, etc.

• Executive Compensation
• Tender Offer Best Price Rule
• Foreign Private Issuer Deregistration
• XBRL
• 404

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Internal Control Reporting

• Some History
• 2005 and 2006 Roundtables
• Recommendations of SEC Advisory Committee on
  Smaller Public Companies (April 2006)
• GAO Report (April 2006)
• Commission Announced Next Steps on Sox 404
  Improvement (May 2006)
• PCAOB Announced Four-Point Plan to Improve
  Implementation (May 2006)
• COSO Guidance for Small Companies (July 2006)

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Amended Compliance Dates Adopted on December 15,
2006
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Internal Control Reporting - Reporting Results in
Year 3

• Year Three Filers (Year-ends after 11/14/06
  filed through 3/31/07)
• Approximately 2,838 filings
• 147 (5.2) received audit opinion indicating
  ineffective ICFR
• Disproportionate number of smaller registrants
  (revenues below 500 million) had material
  weaknesses
• 30 of registrants with ineffective ICFR were
  also ineffective during years 1 and 2
• Comparison to Years 1 2
• 10.6 reported ineffective ICFR in Year 2
• 15.8 reported ineffective ICFR in Year 1

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Internal Control Reporting - Reporting Results by
Industry
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Ineffective ICFRWhat types of issues did they
have?
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Ineffective ICFRWhat FS elements involved?
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Proposed Interpretive Guidance for Management

• Key Attributes of the Proposed Guidance
• Principles-based
• Does not replace requirements of framework
• Directs efforts to areas of highest risk of
  material misstatement to financial statements
• Allows management to tailor the evaluation
  process to their facts and circumstances
• Provides guidance on supporting the assessment
• Provides framework for evaluating deficiencies
• Non-exclusive safe harbor

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Proposed Interpretive Guidance for Management
(continued)

• Comment Period Ended February 26, 2007
• Over 200 comment letters received
• Themes Covered by Comment Letters
• Generally Supportive of Principles-based Approach
  
• Alignment with PCAOB proposals
• Prescriptiveness
• Terminology
• Auditor Opinion
• Requests for Additional Clarification

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ICFR Proposed Rule Amendment

• Proposed Amendments to Regulation S-X
• Accountants Attestation Report
• Proposal would require that auditors report
  express only one audit opinion (directly on the
  effectiveness of internal control over financial
  reporting)

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Corp Fin Staff Review Process

• Proactive and early identification of potential
  problem areas
• Staff Focus
• Exchange Act reports, largest issuers and
  riskiest offerings
• More targeted reviews
• IFRS Filings

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Division of Corporation Finance

• Review Statistics FYE September 30, 2006
• 4,485 issuer reviews for SOX purposes (more than
  1/3 of issuers)
• 630 IPOs 155 new 34 Act reviews
• 26.2 days average time for initial comments on
  registration statements

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A Sampling of Accounting, Disclosure and
Reporting Issues

• Business Combinations
• Segments
• Contingencies, loss reserves uncertain tax
  positions
• Common Reporting Problems

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Business Combinations

• Formation issues
• Merger between a shell company and private
  operating company should be a recapitalization
  (and no goodwill!)
• Acquisition of business or assets?
• EITF 98-3 vs. Article 11 of S-X
• No goodwill for asset acquisitions
• Recognize all identifiable intangibles
• Staff will question when large portion of
  purchase price is allocated to goodwill par.
  51(b) of SFAS 141 disclosure

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Segments and Reporting Units

• Segments
• Objective is to provide information about
  different types of business activities and
  economic environments
• Accomplished through management approach
• Key Steps
• Identify operating segments
• Navigate aggregation criteria (par. 17 and 19 of
  FAS 131)
• Reporting Units
• Important to remember the relationship between
  operating segments and Statement 142 (EITF Topic
  No. D-101)

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Contingencies, Loss Reserves Tax Uncertainties

• Disclosure of contingencies loss reserves
• Nature and amount (range?)
• Tax Uncertainties
• applies to ALL income tax positions (deductions,
  decisions not to file a return, etc.)
• Increased Disclosure Requirements
• Evidence and documentation reasonable judgment
• MDA
• FAS 5, FIN 14, SOP 96-1, SAB 5Y, FIN 48, SK 303

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Common Reporting Problems

• Restatements
• Acquisition of a Business
• Pro Forma Financial Statements
• 4.01 8-K (Change in Accountant) Reporting
• 4.02 8-K (Non-Reliance on Previously Issued
  Financial Statements) Reporting

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SEC Resources

• Current Accounting and Disclosure Issues in the
  Division of Corporation Finance updated
  11/30/06
• Current Issues and Rulemaking Projects Quarterly
  Updates
• Frequently Requested Accounting and Financial
  Reporting Interpretations and Guidance
• International Reporting and Disclosure Issues
• Summary by the Division of Corporation Finance of
  Significant Issues Addressed in the Review of
  the Periodic Reports of the Fortune 500 Companies
• Guidance for Consulting with the Office of the
  Chief Accountant
• Speeches
• Website Address www.sec.gov/divisions/corpfin.sh
  tml

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Conclusion

Questions and Answers

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