Special Report AICPA National Conference on Current SEC and PCAOB Developments

<strong>Special</strong> <strong>Report</strong> 

<strong>AICPA</strong> <strong>National</strong> 

<strong>Conference</strong> on 

Current SEC and 

PCAOB Developments

2 

Bloomberg BNA <strong>Special</strong> <strong>Report</strong>: 

<strong>AICPA</strong> <strong>National</strong> <strong>Conference</strong> on Current SEC and PCAOB Developments 

This special report offers a first-hand summary of the year-end conference on SEC and PCAOB 

developments held by the American Institute of Certified Public Accountants. Many in the 

financial reporting community view the <strong>AICPA</strong>’s year-end conference in Washington, D.C. as the 

most important – and most timely – accounting-related conference in the United States. Drawing 

the largest audience of any such accounting-related event, this conference often reveals insights 

from the standard setters through officials’ speeches and generous question-and-answer 

sessions. 

Bloomberg BNA’s Accounting Policy & Practice <strong>Report</strong> provided unparalleled coverage of this 

event, including remarks from Financial Accounting Standards Board Chairman Leslie Seidman 

and International Accounting Standards Board Chairman Hans Hoogervorst. Coverage that was 

unmatched by other news and information outlets. 

Leaders of regulatory agencies and private standard-setting bodies – including FASB and IASB 

chairmen and members of the Securities and Exchange Commission and the Public Company 

Accounting Oversight Board – often present their freshest perspectives on issues at the 

conference. They typically unveil new speeches there. 

Senior enforcement officials at the SEC and PCAOB – along with mid-level staff members, as well 

as auditors, corporate accountants and analysts – also drill down into the detail of rule-making, 

regulatory and more general financial reporting topics. In doing so, they give color to the bigger 

pictures offered in speeches presented by the conference’s leading lights. 

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For more information, visit www.bna.com or call 800.372.1033 

© 2013 The Bureau of <strong>National</strong> Affairs, Inc.

3 

The <strong>AICPA</strong> <strong>Conference</strong> on Current SEC and PCAOB Developments took place December 3-5, 

2012 at the Marriott Wardman Park hotel, in Washington, D.C. This collection of articles first 

appeared in Bloomberg BNA’s Accounting Policy & Practice <strong>Report</strong>. 

Auditor Independence 

SEC's Top Accountant Again Spotlights Audit Firms' Non-Audit Consulting 

Auditor Oversight 

Aguilar Remains ‘Seriously Concerned’ Over Lack of Oversight for Foreign Auditors 

Doty Urges More Focus on Academic Papers, Possible Social Impacts of Audit Mistakes 

Look to PCAOB Inspections To Strengthen Audits, SEC's Croteau Urges 

Disclosures 

SEC's Corporation Finance Official Says Cyber Security Disclosures Improved 

Enforcement 

Proceedings Against PRC-Based Auditors Aimed at Protecting Agency's Processes 

Financial Instruments 

SEC's Beswick Hopeful About IASB, FASB Aligning on Instruments 

Investors Dismayed by Convergence Efforts, FASB, IASB Pace on Financial Instruments 

Income Taxes 

SEC Scrutinizing if Companies Justified In Reversing Tax Asset Valuation Allowance 

International Convergence 

FASB Chairman Describes Characteristics Necessary for Convergence Standards in U.S. 

‘Tangible Sign’ of U.S. Commitment To IFRS Is Essential, Says IASB Chief 

International Standards 

Schapiro Departure Adds to Uncertainty Over Timing of Decision on IFRS Use in US 

Segment <strong>Report</strong>ing 

SEC Staff Urges Comprehensive Story on Segment <strong>Report</strong>ing Decisions 

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Auditor Independence 

SEC's Top Accountant Again Spotlights Audit Firms' Non-Audit Consulting 

Accounting Policy & Practice <strong>Report</strong> 

<strong>AICPA</strong> <strong>Conference</strong>, 12/07/2012 

By Steve Burkholder 

The top accountant at the Securities and Exchange Commission Dec. 3 again voiced concerns 

about risks to auditor independence presented by leading audit firms boosting their non-audit 

consulting business. 

Two years ago, James Kroeker, the SEC's chief accountant at the time, spoke at a major 

accounting conference about hearing word of audit firms rebuilding their consultancy practices 

after the Sarbanes-Oxley Act set boundaries on the mix of tasks being provided by a single firm. 

Kroeker said he hoped that “the profession will not need to relearn lessons of the past on the 

serious, adverse effects of under-investing” in audit quality. 

This year, at the same conference of the American Institute of Certified Public Accountants, Paul 

Beswick, acting chief accountant at the SEC, sounded similar cautionary signals. Speaking for 

himself and not for the Office of the Chief Accountant or the commission, Beswick tied the issue of 

non-audit consulting to auditor independence. 

“Revenue and profit pressures at an accounting firm can give rise to conflicting incentives, but the 

accountant's obligation to the public trust cannot change,” said Beswick, who was named acting 

chief accountant in July after Kroeker announced his resignation. 

“Keeping that in mind, I continue to observe some accounting firms actively growing consultancy 

practices,” Beswick said in his speech at the <strong>AICPA</strong> conference on developments at the SEC and 

Public Company Accounting Oversight Board. 

“Some of this is anecdotal,” he continued, “but I can tell you that OCA is occasionally asked about 

transactions involving accountants that are expanding their non-audit service practices.” 

Beswick noted that some of the growth in non-audit consulting “relates to businesses that are 

fairly removed from the accountant's professional mandate to perform quality audits.” He cited the 

SEC staff's becoming aware of accountants “acquiring businesses that provide project 

management, system architecture design,” and other information technology “infrastructure 

services.” 

“At a minimum, these transactions can raise transitional issues with respect to compliance with 

the auditor independence rules,” Beswick added. “However, in my mind, more important is how 

the accounting firm views its non-audit services practice, and whether this results in the 

accounting firm devoting the appropriate resources to its audit and attest practice.” 

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5 

Weakening of Public Trust? 

The SEC's acting chief accountant went on to state that he questions “whether accountants' 

expanding practices into areas unrelated to their primary competencies weakens” the public trust. 

“I'm disheartened when I read an article in the press that raises questions about the propriety of 

non-audit services that accountants provide to their audit clients,” he continued. “It is firmly rooted 

in the independence principles that independence is needed in both fact and appearance. 

“As you all know, perception is reality, and negative perceptions can undermine investor 

confidence in audits,” said Beswick. 

Expansion ‘Does Little to Promote Audit Quality.’ 

In his wide-ranging speech, Beswick went on to also describe his concern that audit firms' 

expanding “into businesses that have little relevance to the accountant's primary competencies 

probably does little to promote audit quality.” 

The acting chief accountant said that such expansion also “has the potential to distract a firm's 

leadership and other personnel from providing appropriate attention to their audit practice.” That 

kind of growth in non-audit work runs the risk of damaging the accountant's reputation, he added. 

“I'm hopeful that my comments today will help to encourage a degree of reflection when firms are 

faced with decisions about growth that undoubtedly will shape the public's long-term views of their 

firm and potentially of the entire profession,” Beswick said in concluding on the topic. 

In a brief ad hoc session with reporters after his speech, Beswick suggested he was not referring 

to any one individual form of transaction that led to his statements of concern about the growth in 

non-auditing consulting. 

“As you see they're increasing their consultancy practices, should we be stepping back and 

saying is this really the right thing?” he said. 

Other Highlights of Beswick's Speech 

In other highlights of his Dec. 3 speech at the <strong>AICPA</strong> conference and in comments after the 

speech, Beswick spoke about: 

 

 

his measure of optimism that the Financial Accounting Standards Board and the 

International Accounting Standards Board can achieve an alignment of views on their 

high-priority joint project on financial instruments—and not only on classification and 

measurement, but also on the even knottier issue of how to account for loan and other 

credit losses; 

the issue of whether the SEC will call for some form of incorporation of international 

financial reporting standards into the reporting regime for U.S. public companies, and the 

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6 

commission's staff working with incoming Chairman Elisse Walter “to determine the next 

steps in the process”; 

 

 

 

seeking a coordinated implementation of converged accounting standards aimed at global 

use, the importance of how “a more holistic approach to implementation guidance” can be 

taken, and how participants in financial reporting should be cautious about following 

“first-to-press” non-authoritative guidance written by trade associations and others; 

the SEC's plan to hold a public roundtable in coming months on what should be “the 

dividing line between what should appear in financial statements versus the broader 

financial reporting package,” such as management's discussion and analysis—which he 

called, overall, “a critically important issue”; and 

how “there can be no question at this point,” 10 years after the enactment of the 

Sarbanes-Oxley reform act, that due to the institution of companies' effectively certifying 

their internal control over financial reporting (ICFR), “investors have benefited from 

improvements in the reliability of financial reporting due to the increased focus on ICFR,” 

and that auditors and the financial reporting community should “stay focused” on that. 

Accountants Doing Their Jobs 

In concluding his wide-ranging speech, Beswick homed in on what he sees as “an unfortunate 

trend to highlight only when individuals are criticized for failing to do their job.” Rather, in speaking 

to the many auditors in the audience at the <strong>AICPA</strong> conference, he said: “[I]t is not lost on me that 

there are literally tens of thousands of hard-working and dedicated accounting professionals who 

show up to work every day and do their job well. 

“It is unfortunate that we do not have better mechanisms to highlight their successes,” Beswick 

continued. “So let me try one here today. Thank you. Investors are better protected for your 

efforts.” 

For More Information 

The text of the Beswick's Dec. 3 speech is available at 

http://www.sec.gov/news/speech/2012/spch120312pab.htm. 

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Aguilar Remains ‘Seriously Concerned’ Over Lack of Oversight for Foreign Auditors 



By Yin Wilczek 

Securities and Exchange Commissioner Luis Aguilar Dec. 3 said he remains “seriously 

concerned” about the lack of effective U.S. oversight for foreign auditors that issue audit reports or 

participate in the audits of U.S. issuers. 

The commissioner, addressing a conference in Washington organized by the American Institute 

of Certified Public Accountants, noted that the Public Company Accounting Oversight Board has 

not been allowed to inspect the auditing work of accounting firms in certain European countries 

and in China. 

Under these circumstances, the question that arises is whether the issuers audited by such 

foreign firms should be allowed to trade in U.S. securities markets, Aguilar said. “This is a 

question that must be answered with the needs of investors in mind—both to protect investors 

and to promote capital formation,” he said. “This has been an open issue for some time, and it is 

past time that it be resolved.” 

Aguilar said he spoke his own views, which did not necessarily reflect those of the commission, 

other members, or SEC staff. 

Chinese Reverse Mergers 

Aguilar, a supporter of strong SEC enforcement, has long been concerned about potential fraud 

from foreign entities trading in U.S. markets. In April 2011, he highlighted accounting irregularities 

and other problems discovered in a growing number of China-based companies who gain access 

to U.S. investors through reverse mergers. 

In his speech, Aguilar also urged the PCAOB to continue pushing for the ability to inspect the 

Chinese operations of registered accounting firms. While the PCAOB now can observe the audit 

inspections of regulators from the People's Republic of China, “I am hopeful it is a first step to 

achieving the ultimate goal of a full inspection,” he said. 

In other remarks, Aguilar urged the SEC and PCAOB to continue monitoring the financial 

reporting and internal controls of issuers exempted from the auditor attestation requirements of 

the 2002 Sarbanes-Oxley Act to determine if reinstatement of the requirement is necessary. 

SOX Section 404(b) 

Aguilar noted that auditor attestation of issuers' internal controls—as required by SOX Section 

404(b)—results in more financial transparency and investor protection, and promotes true capital 

formation. 

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8 

However, even as the costs of complying with Section 404(b) have decreased, and despite its 

benefit to investors, there are repeated efforts to scale back the provision, Aguilar said. He noted 

that in 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act permanently 

exempted all smaller issuers from Section 404(b) requirements. Following that, the Jumpstart Our 

Business Startups Act similarly exempted emerging growth companies from the provision for up 

to five years after their initial public offerings, he observed. 

In monitoring the exempt entities, the SEC and PCAOB should “not hesitate to call for 

reinstatement of” Section 404(b) should it be necessary for capital formation and investor 

protection, he said. 

Meanwhile, speaking to reporters after his speech, Aguilar said investor protection remains his 

goal under the forthcoming chairmanship of Elisse Walter. “Whatever the agenda Chairman 

Walter decides, my focus would be—how does that possibly impact investors,” he said. “When it 

harms investors, I will fight mightily to have that turned around.” 

Following SEC Chairman Mary Schapiro's announcement that she will leave the SEC Dec. 14, the 

White House said it will designate Walter as the new chair. 


The text of Aguilar's speech is available at 

http://www.sec.gov/news/speech/2012/spch120312laa.htm. 

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Doty Urges More Focus on Academic Papers, Possible Social Impacts of Audit Mistakes 



By Che Odom 

Misstatements and fraud create more issues than financial costs, including social damages that 

may be felt for years, according to Public Company Accounting Oversight Board Chairman James 

R. Doty. 

“Our economic success depends on the confidence of the users of capital and the providers of 

capital alike,” Doty said Dec. 3 in a presentation to the American Institute of Certified Public 

Accountants' <strong>National</strong> <strong>Conference</strong> on current SEC and PCAOB developments. 

Doty's talk referenced history, case law, and academic research that concerned financial 

reporting and fraud. He described accountants as the gatekeepers of “accurate and detailed 

information” upon which corporate managers and other users of capital must base their decisions. 

Mistakes in the data provided by accountants can send a company into business practices or 

markets that may squander corporate resources, he said. The damage caused by financial 

misstatement is “much greater than stock market fallout, concomitant lawsuits, and insurance 

claims,” he added. 

Impact on Workers 

Doty pointed to research completed by Simi Kedia, a professor at Rutgers University, and 

Thomas Philippon, now an associate professor at New York University's Stern School of 

Business. 

The two academics wrote an article in 2009 that reported the costs of misstatements by 

companies known to have been managing earnings between 1997 and 2000. They found that 

“the essential point that merges” is that if management wants to maintain appears of good 

financial health, then hiring and investment must be consistent with reported profits, Doty said. 

“Therefore, they found, during the years of earnings management the companies increased hiring 

by 25 percent,” Doty said. “Competitors increased hiring, on average, by only 7 percent. As soon 

as companies came clean, the unneeded employees were fired.” 

The researchers estimated that the restating companies fired between 250,000 and 600,000 

workers between 2000 and 2002, slashing payrolls by more than 25 percent, while other 

companies cut them by just 1.5 percent, Doty said. 

Impact on Competitor Companies 

Columbia Business School Professor Gil Sadka did his doctorate dissertation at the University of 

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Chicago on the effects of fraudulent reporting on competitor companies. 

“He found that false reporting leads both companies who misreport and their competitors to 

overinvest in new technology and engage in misguided price wars,” Doty said. 

Manipulating financial records misleads investors and other companies into inefficient capital 

allocation, he said. 

“Economists warn that this, in turn, leads workers to train up, and sometimes move families, for 

jobs in industries that don't really need them,” he said. “Years later, when they lose those jobs, 

their potential productivity is yet again wasted in unemployment.” 

Doty encouraged auditors to look at academic literature and the writing of other “thought leaders” 

who have refocused their attention on the important of the profession. 

“Their new look at the archives of the last decade may lead you to new insights of your own,” he 

said. 

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Look to PCAOB Inspections To Strengthen Audits, SEC's Croteau Urges 



By Steven Marcy 

Accounting firms should look to Public Company Accounting Oversight Board inspection reports 

for guidance on how to strengthen internal controls and enhance the remediation of deficiencies 

in their audits, Securities and Exchange Commission Deputy Chief Accountant Brian Croteau told 

the American Institute of Certified Public Accountants' <strong>Conference</strong> on Current SEC and PCAOB 

Developments. 

The inspection reports can help firms identify the important shortcomings in audits that the 

PCAOB is concerned about when firms fail to adequately correct their audit deficiencies, and they 

can help firms develop “a robust audit feedback loop” with companies, Croteau said Dec. 3. 

Such a feedback loop can provide insight into “the nature of current deficiencies, the likely causes 

of them, and potential solutions to address them,” Croteau said. 

Croteau also said that the PCAOB should make as a “high priority” the replacement of interim 

auditing standards inherited from the <strong>AICPA</strong> with permanent standards promulgated by PCAOB. 

However, audit firms need not await such new standards, which must be approved by the SEC 

before becoming effective, and can embark on upgrading their own auditing practices, in part by 

using insights gleaned from PCAOB inspection reports, Croteau said. The firms can start by 

making sure they do not commit the same types of deficiencies “most often cited” in PCAOB 

inspection reports, he said. 

Croteau also urged audit committees of companies to have their potential auditors “compete on 

engagement quality” as a “key element” when hiring or retaining auditors as a way of ensuring 

audit quality. 

Auditors also should strive to look beyond audit evidence provided only by management to verify 

assertions being made by the company, Croteau said. 

Pricing Services, Fair Value 

The transparency of information provided by pricing services over the techniques they use to 

value assets and instruments has improved over the last year, Croteau said. Pricing service users 

have increased the challenges they make to prices that services provide and “deep dives” by 

users of pricing services into how those prices are calculated, he said. 

The increased transparency and understanding by management of pricing techniques will lead to 

greater investor confidence in the quality and veracity of financial statements, Croteau said. 

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Disclosures 

SEC's Corporation Finance Official Says Cyber Security Disclosures Improved 



By Denise Lugo 

The Securities and Exchange Commission's Division of Corporation Finance has seen improved 

cyber security disclosures when “it is reasonably likely that an attack will lead to reduced 

revenues or increase protection costs or litigation costs,” Melissa Rocha, an accounting branch 

chief at Corp. Fin., said Dec. 4. 

Specifically, during a panel discussion at the <strong>AICPA</strong>'s <strong>Conference</strong> on Current SEC and PCAOB, 

Rocha said “registrants have been disclosing these possible outcomes in their [management 

discussion and analysis]—if material.” If an attack does not result in lost revenues but however 

causes a company to increase its cyber security measures and expenditures, said Rocha, 

registrants have also been disclosing that impact—if material. 

Materiality 

This is consistent with the requirements under Regulation S-K, that a material event, trend or 

uncertainty that is reasonably likely to have a material impact on financial results would need to be 

disclosed. In other words, materiality needs to be the driver of these disclosures. 

Last year the SEC issued CF Disclosure Guidance, Topic 2, on cyber security, a disclosure guide 

premised on materiality to cyber security measurements. 

Incremental dependence on digital technologies to conduct business has seen increased focus 

by the legal and accounting community on how cyber security risks and their related impact on 

operations of a registrant should be described in their exposure documents, said Rocha. 

Areas where Division May Comment 

Asked about examples of incidents where the division may issue cyber security comments, 

Rocha said in some cases they “look to information gathered outside of the filings and asked 

pointed questions regarding the disclosure of a particular event.” 

In other cases, said Rocha, corporation finance has actually questioned risk factor disclosures 

where a company has implied that they might experience an attack when in fact they have been 

attacked. 

“In those cases we simply wanted companies to acknowledge that they were experiencing 

attacks. Overall, we've seen incremental improvement in these disclosures,” she said. 

In terms of the level of details related to the disclosures, Rocha said companies should provide 

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13 

sufficient disclosure to allow investors to appreciate any internal risk that they face. 

“We understand the concerns that detailed disclosures would comprise a company's security 

measures,” said Rocha. “We're not projecting that all incidents should be reported, we're only 

asking for specific details of those incidents, she said. 

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14 

Enforcement 

Proceedings Against PRC-Based Auditors Aimed at Protecting Agency's 

Processes 



By Yin Wilczek 

The fact that People's Republic of China-based affiliates of auditing and accounting firms are 

barred by local laws from turning over documents to the Securities and Exchange Commission 

has no bearing on the commission's recent administrative actions against these entities, a senior 

enforcement official said Dec. 4. 

Howard Scheck, the chief accountant of the SEC's Division of Enforcement, said that the 

commission, through the proceedings, is trying to protect its processes and ensure that it has 

access to audit work papers in its investigations of issuers. 

“The reason for the non-production is somewhat irrelevant to the nature of our action, which is a 

[Rule] 102(e) proceeding to protect the commission's processes,” he said. 

Scheck spoke during an enforcement panel at an American Institute of Certified Public 

Accountants' conference in Washington. He and David Woodcock, director of the SEC's Fort 

Worth Regional Office, said they voiced their own views, which did not necessarily reflect those of 

the SEC or other staff members. 

Failed Talks 

The SEC disclosed Dec. 3 in a filing in the U.S. District Court for the District of Columbia that 

negotiations with Chinese authorities to establish a disclosure mechanism through which it can 

access audit work papers of China-based auditors have ended unsuccessfully. Specifically, the 

agency asked the court to lift the stay on its lawsuit against Deloitte Touche Tohmatsu's Shanghai 

unit to compel production of work papers relating to a China-based issuer. 

The same day, the SEC filed an administrative proceeding against Chinese affiliates of five major 

U.S. audit and accounting firms for failing to hand over documents sought by the SEC in its 

investigation of their clients. The administrative action was brought pursuant to the commission's 

Rule 102(e), under which the SEC may bar persons from appearing or practicing before it if they 

have been found to have willfully violated or willfully aided the violation of the federal securities 

laws. 

The accounting and auditing firms generally have asserted that their hands are tied because of 

conflicting Chinese and U.S. law. 

Co-panelist William McLucas, a partner in Wilmer Cutler Pickering Hale & Dorr LLP, Washington, 

suggested that the solution to the matter likely is not the “blunt instrument of an enforcement 

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15 

proceeding.” Instead, the situation calls for a high-level government-to-government resolution that 

might best be tackled by the State Department or others, he said. 

Problematic Conduct 

In other comments, Scheck reported that with respect to auditors, enforcement staff continues to 

witness certain problematic conduct. Such conduct includes perfunctory materiality analyses, 

suspicious rationalizations to support management views, and “plain failures” to assess the 

issues at hand, calling into question the auditors' professional skepticism. 

Woodcock also told the audience that the SEC thus far has reached 46 cooperation 

agreements—including non- and deferred-prosecution agreements—with individuals and entities. 

“There is a good chance that the cooperation program will continue to expand as potential 

defendants learn about it,” he said. 

Meanwhile, McLucas commented that at some point, a question may arise as to whether the 

SEC's whistleblower bounty program is worth the resources currently devoted to it. McLucas 

asked the SEC panelists whether, from a cost and policy standpoint, there is a way to assess 

whether the program is yielding the kind of results needed to justify its existence. 

“My worry is that [the program] puts in tremendous risks for individuals in the commission who are 

trying to process” the whistleblower complaints, he said. He added that he also is concerned that 

enforcement staff members will spend too much time on worthless tips for fear of being 

second-guessed. 

Woodcock responded that he did not know the answer to the question, or whether it was “too soon 

to ask that question.” 

Moving on to the Foreign Corrupt Practices Act, Woodcock told the audience that issuers' 

compliance programs should include accountants because of the books and records and internal 

control provisions of the statute. 

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SEC's Beswick Hopeful About IASB, FASB Aligning on Instruments 




The top accountant at the Securities and Exchange Commission expressed a measure of 

optimism Dec. 3 that the Financial Accounting Standards Board and its international partner in 

rulemaking will be able to harmonize on accounting for financial instruments—including on 

accounting for loan losses—despite their differences on the issue. 

At an ad hoc press scrum at a Washington accounting conference, Paul Beswick, the SEC's 

acting chief accountant, was asked by Bloomberg BNA whether he was dismayed that FASB and 

the International Accounting Standards are at loggerheads on impairment, or accounting for credit 

losses. Standard-setters have deemed that a must-converge topic in the closely watched joint 

instruments project. 

“No,” Beswick responded, citing progress by IASB and FASB—against expectations in the 

accounting world—on another aspect of the joint effort, on how to classify and measure financial 

instruments. 

“Remember classification and measurement. They were at each others' throats over this,” he 

continued, referring to the time preceding the panels' formally floating of proposals on the topic. 

“And when they put the two models out there, both boards learned a lot,” said Beswick. “That is 

what I'm hopeful will happen with impairment.” The seeking of the feedback from the financial 

reporting community preceded a more-or-less coming together on a basic classification 

prescription. That tentative aligning was marked by a substantial shift by FASB away from having 

loans, for example, recorded at fair value, which the U.S. panel proposed in May 2010. 

Beswick Accentuating the Positive 

In his comments to reporters, as in his earlier speech, Beswick on Dec. 3 accentuated the positive 

in viewing the work to date by IASB and FASB on what he called the three main “convergence 

projects.” 

The SEC's acting chief accountant said he is “encouraged about the level of convergence” in the 

revenue recognition and leases projects, on which the boards have labored for a number of years. 

“When thinking about the status of the financial instruments project, I think some perspective is 

important,” he continued. “As I frequently mention, 18-24 months ago it was called almost 

unthinkable by some that the boards would be able to reach substantive agreement on 

classification and measurement. Yet today the Boards are a lot closer than probably many of you 

expected.” 

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17 

Divergence on Impairment 

Beswick noted, however, that during the same period, IASB and FASB “have diverged on the 

impairment aspect of the project.” 

On how the boards might move forward on impairment, the SEC's top accountant said he thinks it 

is important for both Boards to release their respective accounting models “for public feedback to 

see if there is a way to reconcile the two views.” He added: “It is also important that the exposure 

period for the documents be similar so that interested parties can have the benefit of both boards' 

thinking and can provide feedback to both boards concurrently.” 

FASB plans to keep its forthcoming impairment proposal open for comment for some four months. 

The comment period would be end on the later of 120 days after release of the fresh exposure 

draft or April 30. 

Timetable for Issuing Recast Proposals 

In coming months, both FASB and IASB plan to issue—or “re-expose” for public 

comment—revised proposals on classification and measurement and on impairment. 

In the impairment proposal that FASB expects to issue by Dec. 31, it will formally propose a 

“current expected credit loss” approach to accounting for credit losses. That model would be 

applied to debt securities as well as to loans and other financial assets. 

The FASB model differs markedly from the IASB's “three-bucket” approach. The latter is based on 

the credit quality or deterioration in such quality of financial assets. The three-bucket model had 

been chiseled out painstakingly by the London- and Norwalk, Conn.-based boards. 

Both the FASB and IASB approaches are built on reporting of expected credit losses, 

representing a shift away from current accounting policies built on incurred losses, as members of 

the boards stress. A main aim of the joint rulemaking on impairment is to remedy the kind of “too 

little, too late” reporting of banks' loan losses that figured prominently in the 2008 financial crisis. 

Hans Hoogervorst, in comparing and contrasting the IASB's approach with that of the FASB 

model, said of the U.S. board's prescription at a Nov. 20 joint meeting on impairment: “We did not 

come up with a model that is so obviously wrong as this.” 

Similar Feedback on Earlier Model 

In speaking with reporters after his speech, Beswick elaborated on his reasons for having a 

relatively optimistic view on IASB-FASB being able to get on the same track. 

“Once you can actually see a standard, and people can start to comment—because right now 

people are commenting based on board meetings and Power Point presentations,” he said. “I 

think the feedback will be much better informed once you have a standard to look at.” 

In seeking interest parties' input on whether the earlier, “three-bucket“ impairment model—still 

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18 

favored by IASB—would be operational and auditable, FASB received appraisals from banks, 

other companies, auditors and investors that the model is overly complex and difficult to apply. 

To one reporter's statement on investor feedback on the earlier-agreed impairment model, 

Beswick said FASB “did a tremendous amount of outreach to investors and they were able to 

demonstrate that investors didn't like the model that they had come out with.” 

IASB, in seeking comments on the workability of its impairment approach, is “getting very similar 

feedback that the FASB got when they were originally in the three-bucket approach,” Beswick told 

reporters in response to a question from Bloomberg BNA. 


A description of FASB's and IASB's joint standard-setting on accounting for financial instruments 

is available at http://www.fasb.org. 

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19 


Investors Dismayed by Convergence Efforts, FASB, IASB Pace on Financial Instruments 




A panel of investors voiced dismay Dec. 5 with efforts of the Financial Accounting Standards 

Board and its international counterpart in completing what are to be improved, aligned new 

standards on financial instruments, especially on loan loss accounting. 

“With financial instruments, I'm stunned that it's taken as long as it has. I'm sure that the board 

members are, too,” Alan Zimmerman, an insurance analyst at Macquarie Securities, said at a 

Washington conference of the American Institute of Certified Public Accountants. That joint effort 

of FASB and the International Accounting Standards Board began some six years ago. 

“I mean, we had the financial crisis five years ago,” continued Zimmerman. “We're still trying to 

figure out how to account for financial instruments.” 

Another investor on the panel, Elizabeth Mooney, of Capital Strategy Research, San Francisco, 

said she is “pretty discouraged” with the recent outcomes of the convergence efforts of FASB and 

IASB. Mooney, a member of FASB's Investors Technical Advisory Committee, spoke of work to 

improve financial statement presentation and segment reporting—topics important to users of 

financial statements, she suggested—essentially being deferred. 

Project Warranting Quickest Completion, Convergence 

Zimmerman, an insurance specialist, later commented that he sees the instruments effort as the 

most important of the quartet of convergence projects on which FASB and the International 

Accounting Standards Board have been working for years – that is, the one warranting the 

soonest completion and the quickest alignment. The other rulemaking topics are leases, revenue 

reporting and insurance contracts. 

“I think that really drives a lot of the whole capital markets,” Zimmerman said of financial 

instruments and the reporting on them. ”To me there's no comparison to the others.” 

Zimmerman was asked by the panel's moderator, Sandra Peters, accounting policy chief at CFA 

Institute, whether he sees that, because new instruments rules have taken more than five years to 

be written and likely will not be effective for two to three years, a question is raised about the 

usefulness of financial statements. 

“I don't think that gets at the usefulness of financial statements,” replied Zimmerman. “I think its 

gets at the usefulness of financial standard-setters.” The line drew scattered applause and some 

laughter in the audience of some 1,600 accountants at the <strong>AICPA</strong>'s annual conference on 

developments at the Securities and Exchange Commission and the Public Company Accounting 

Oversight Board. 

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> 



20 

Zimmerman later praised accounting standard-setters for their pending efforts to significantly 

improve insurance and lease accounting. He also spoke positively of FASB's work to reach out to 

investors for feedback on accounting issues and for making comprehensive income and “other 

comprehensive income”—the latter he called “a dumping ground for unwanted earnings 

volatility”—more visible in the financial statements. 

Janet Pegg, another analyst on the panel, said she agreed with Zimmerman that the financial 

instruments effort is the most important project to complete, “and within that, very specifically, 

impairment.” 

Impairment, or accounting for credit losses, including loan losses, has been a topic of contention 

between FASB and IASB. The boards have proposed different accounting prescriptions. 

“The sooner we can get this done, the better,” said Pegg, a managing director as UBS AG. “It 

would be wonderful if it could be done quicker. 

Challenges to Rulemakers on Instruments 

“To some extent, I understand that there are some real strains out there,” Pegg, a former member 

of both FASB's Financial Accounting Standards Advisory Council, or FASAC, and the board's 

Investors Technical Advisory Committee, added. “The business world is evolving. So that's why 

accounting standards are constantly trying to catch up. 

“And with a difficult standard and one on which they're trying to converge, it's going to take extra 

time,” she said. “I wish that wasn't the case. I understand it. I'd love to try and figure out a way to 

make it go faster.” 

Need for ‘Broader Discussion’ Among Regulators? 

The fourth member of the panel, Adam Hurwich, a portfolio manager at Ulysses Management, 

also spotlighted accounting for financial instruments. 

“Financial instruments is a problem,” said Hurwich. He pointed to a recent article in a respected 

financial news publication. The article displayed, he suggested, a large amount of “confusion” 

about the issue of raising capital at European banks. He added that he believes that confusion 

stems from “a lack of clarity in terms of thinking about we're doing means. 

“And I think the regulators should play a role in this,” Hurwich continued, “because regulators 

themselves look at the accounting numbers somewhat differently than maybe some people think. 

“I think that financial instruments definitely should be looked at, and I think we should get a 

broader discussion, and if we solved for that, some of the other issues can be solved as well,” said 

Hurwich, who, like Peters, is a member of FASAC. 

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21 

Income Taxes 

SEC Scrutinizing if Companies Justified In Reversing Tax Asset Valuation Allowance 




As some companies are returning to profitability in 2012 after the impacts of the financial crisis, 

the Securities and Exchange Commission is looking closely at whether companies are justified in 

reversing valuation allowances against their deferred tax assets, members of the SEC's Division 

of Corporation Finance accounting staff said Dec. 4. 

Accounting rules require companies to lower the value—a valuation allowance—of their deferred 

tax assets if economic conditions or other factors are likely to prevent them from making enough 

revenue to equal the amount they had booked as a deferred tax asset, and therefore realize it. 

Losses from the economic downturn in recent years “are a significant negative when assessing 

the realizability of deferred tax assets,” Mark Shannon, Corp. Fin.'s Deputy Chief Accountant told 

the American Institute of Certified Public Accountants' <strong>Conference</strong> on Current SEC and PCAOB 

Developments. But he also said that recurring losses need not always result in a valuation 

allowance of a deferred tax asset. 

The SEC “would find it difficult to conclude that losses due to an economic downturn would be an 

aberration” that would permit the reversal of a valuation allowance, although Shannon also noted 

that this remains a matter of judgment for the filer. 

What Evidence Justifies a Reversal? 

“The current economic environment seems fairly uncertain,” Shannon said, “but we have seen 

some [SEC] registrants return to profitability this year, which understandably has led to some 

questions of when a valuation allowance can be reversed. In other words, when does the positive 

evidence outweigh the negative evidence that exists in the form of cumulative losses in recent 

years. But, unfortunately, there's not one-size-fits-all approach to that analysis.” 

Corp. Fin.'s Nili Shah emphasized that companies “really need to continue to evaluate the positive 

and negative evidence in determining whether to look forward, maintain, or reverse a valuation 

allowance” and to make sure the evidence can be “objectively verified.” 

In deciding if it is justified in reversing a valuation allowance, company management should 

examine the “magnitude and duration” of its losses, Shannon said. That requires weighing the 

“magnitude and duration of the current profitability,” he said. That requires analyzing and 

identifying what factors are “driving” the previous losses and current profitability, he said. 

Shah added that companies should examine the past performance of their forecasts in light of 

actual results in determining if their currently profitability is sufficiently sustainable to reverse a 

valuation allowance. Companies should also examine if there have been significant changes in 

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> 



22 

their type of business that would affect the ability to evaluate accurately the sustainability of their 

profitability. 

Shannon also warned that the SEC will have questions if a company reports impairment of 

goodwill while at the same time also asserting a reversal of a valuation allowance—one would 

seem to contradict the other. 

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23 


FASB Chairman Describes Characteristics Necessary for Convergence Standards in U.S. 



By Denise Lugo 

The reasons why the Financial Accounting Standards Board and the International Accounting 

Standards Board have been disagreeing on some key accounting issues stems from FASB's 

need to provide clarity or resolve issues raised by U.S. constituents that the IASB has not heard 

feedback on, FASB Chairman Leslie Seidman said Dec. 4. 

Seidman—at the <strong>AICPA</strong> <strong>National</strong> <strong>Conference</strong> on Current SEC & PCAOB 

Developments—stated that the characteristics necessary for convergence standards to work in 

the U.S. environment—a heavily regulated, litigious environment—requires clear and 

unambiguous standards that can be applied in an efficient way in the short reporting time periods 

preparers and auditors need. In addition, a U.S. environment needs standards that are 

completely consistent with the wording of the standard, she said. 

The FASB as a result, sometimes, has to pause and deal with feedback received about the 

standards' clarity or operationality and ensure that the feedback has been incorporated in the 

standard before proceeding, Seidman stated. 

U.S. Marketplace Drove Impairment Model Change 

The unique U.S. marketplace prompted the FASB's recent change in direction on impairment 

accounting, she said. 

In August and September 2012, FASB made a number of key decisions on an alternative current 

expected credit loss impairment model (CECL) to address U.S. stakeholders' significant concerns 

about the understandability, operability and auditability of the three-bucket credit impairment 

model under joint development with the IASB and whether it would reflect an appropriate measure 

of risk. 

“After repeated attempts to explain the three-bucket model, the FASB concluded that the 

approach, as written, was not consistently understood and therefore would not improve the 

reporting of impaired assets,” said Seidman. 

“We decided that we had to address the concerns now, before we move forward with an Exposure 

Draft; we think we now have a much simpler and clearer expected loss principle. I'm sure we will 

still get comments about whether the revised approach is right, because it is a very controversial 

issue. But my point is more basic; we can't even have that debate until people understand what 

we are proposing,” she said. 

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> 



24 

Standards Enforced Differently Within Jurisdictions 

Seidman moreover stated that the same words in a standard can be a good start, but it is not 

necessarily going to produce consistent information if the standard is interpreted differently or 

enforced differently within a jurisdiction or across jurisdictions. 

Currently, there is some level of diversity in the implementation of international financial reporting 

standards (IFRSs) across jurisdictions. Some other countries adapt IFRS to deal with their 

individual cultural, business, and economic issues, the staff report said. For example, China has a 

unique situation with government-controlled entities, so it has adapted the related parties 

standard to address that situation. 

“This apparent need for some adjustments does not mean that IFRS is flawed; it simply suggests 

that a goal of 100 percent comparability (such as a single set) is not achievable in the near term, 

for very legitimate reasons, in some of the world's largest capital markets,” Seidman said. 

Proactively Monitor New Revenue Recognition 

The importance of considering and understanding the unique nature of a U.S. financial reporting 

environment was also highlighted by Seidman in a question and answer segment with moderator 

Jack Ciesielski, also President at R.G. Associates Inc. 

Ciesielski asked the board how they would keep converged standards converged if FASB and 

IASB have no plans for further joint work on major projects together. His comments, addressed to 

both Seidman and IASB Chairman Hans Hoogervorst, apply to the four convergence projects the 

boards are working on—revenue recognition, insurance contracts, financial instruments and 

leases. The standard on revenue, Revenue from Contracts with Customers, is expected to be 

finalized during the first half of 2013. 

Hoogervorst said that the convergence work with the United States was an effort to pave the way 

towards IFRS adoption, but was not intended to be a permanent way forward since other 

countries—that have adopted IFRSs—want a seat at the table. He pointed out that groups of 

standard setters coming together to resolve issues as they arise is the potential path towards 

resolution. 

Seidman, again highlighting the U.S. environment, stated that U.S. constituents expect the board 

to respond to questions that emerge in a timely manner. “It would be completely unacceptable 

within revenue recognition to have companies do their best to implement it and then have the 

auditor enforcement process, to have numerous questions and restatements occur—it would be a 

disaster,” Seidman said. 

She stated that the board has to proactively monitor the need for clarification of a revenue 

recognition standard and “we have to have a protocol of the IASB to deal with all of these issues 

so that we can stay converged.” 

Seidman also stated that there are times when the FASB sees the need to interpret something 

when the IASB does not. “We would hope that we would have a higher threshold before being 

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> 



25 

required to amend a standard, but I do think there's a lot [of room] between doing nothing and 

amending the standard, where we can work cooperatively through a very important 

implementation and transition period to try and keep the application as close together as 

possible,” she said. 

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> 



26 


‘Tangible Sign’ of U.S. Commitment To IFRS Is Essential, Says IASB Chief 




The chief of the International Accounting Standards Board spoke Dec. 4 of the need for a clear 

signal from the United States that it aims to more fully embrace international financial reporting 

standards as the set of accounting principles to be used by U.S. public companies. 

That message conveyed by IASB Chairman Hans Hoogervorst—reminiscent of words of his 

predecessor 18 months ago—is indicative of frustration felt at the London-based board stemming 

from the Securities and Exchange Commission's holding in abeyance a decision on incorporation 

of IFRS. 

A ruling on that issue was widely anticipated to be made in 2011. Its further consideration, after 

much study and joint labor of IASB and the Financial Accounting Standards Board to align on key 

rules, remains on a side track at the SEC, idle and without a timetable. 

“After a decade of progress, after tireless and sometimes painful work by the boards to bring 

about convergence between IFRS and US GAAP,” Hoogervorst said at a major accounting 

conference in Washington, ”after two years of analysis and report writing, many people around 

the world expect a clearer perspective of this country's intentions with IFRS. 

“That is why we really need a tangible sign of continued US commitment to a single set of global 

standards,” the IASB chairman continued in comments at the conference on SEC developments 

held by the American Institute of Certified Public Accountants. 

“Merely striving for greater comparability between standards will not do,” he said. “We tried that 

during the 1990s and it was a failure.” 

Hoogervorst, who became IASB chairman in July 2011, said that “in the absence of a credible, 

tangible step” by the United States on IFRS, “international concern could turn into international 

skepticism.” He warned that calls by the Group of Twenty nations for global accounting standards 

“would start to ring hollow.” 

End of the ‘Exclusive’ Relationship 

In other remarks, Hoogervorst reiterated a message from earlier, recent speeches that the 

“exclusive” standard-setting partnership between IASB and FASB will not continue. Rulemaking 

going forward will be conducted on a more multilateral basis, he said—with other countries and 

regional standard-setters involved. 

However, Hoogervorst voiced an expectation, for example, that the U.S. board will become “a 

fully engaged partner” in a global forum of standard-setters that IASB expects to convene within 

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> 



27 

several months. 

Maintaining the status quo carries “a big risk” of slipping backward and moving down a path of 

divergence on accounting standards rather than convergence, the IASB chairman warned. 

“The uncertainty about where the SEC is going to land is not a helpful backdrop for our work on 

the remaining convergence projects,” he said, referring to projects such as those on leases, 

revenue recognition and financial instruments. 

A Risk of Increasing Divergence? 

“Already, on some issues it is getting increasingly hard to find common solutions,” Hoogervorst 

added. “If we cannot achieve converged outcomes within a convergence program, then how will 

we maintain convergence once the program has ended? 

“The risk of increasing divergence will be enormous. What a waste that would be.” 

At the same time, the movement toward acceptance and increased use of IFRS around the world 

does not show signs of abating or turning around, notwithstanding the absence of the United 

States in the body of nations that have generally adopted the IASB-written rules, Hoogervorst 

suggested. 

“Five years ago, a standstill in the United States would have had very serious consequences for 

the IASB,” he said. “The risk was that without the US on board, Europe would go its own way and 

Asia would develop its own regional standards. 

“Today, such talk has gone,” added the IASB chairman, who had noted by name a substantial list 

of countries that have embraced IFRS. “For the many countries I referred to, the cost of transition 

to IFRS is behind them. There is no appetite to undo this work and revert to national or regional 

standards. 

“IFRS already has a global impact and that will not change,” he said. “So there is no longer any 

risk of IFRS disintegrating as a result of a standstill in the United States.” 

Remarks of SEC Chief Accountant on IFRS 

The day before Hoogervorst spoke at the <strong>AICPA</strong> conference on developments at the SEC, FASB, 

IASB and the Public Company Accounting Oversight Board, the acting chief accountant at the 

securities commission was asked if when people are gathered at the same conference in 

December 2013, whether attendees “will know whether and, if so, how and when” IFRS will be 

incorporated into reporting system for U.S. public companies will take place. 

Paul Beswick, the SEC's top accountant, spoke Dec. 3 of the challenges of considering what the 

incentives are “for the U.S. to go to IFRS.” Given the depth and breadth of the U.S. capital 

markets, identifying those incentives “can be a little more challenging,” he suggested. 

“I would be hopeful that we would at least have a better indication of where we're going,” Beswick 

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> 



28 

continued, “But, as always, this is really a decision by the commission, and they've got quite a lot 

on their work plate right now.” 

He mentioned several items on SEC's docket, including rulemaking under the Dodd-Frank reform 

law; tasks required under the 2012 Jumpstart our Business StartUps (JOBS) Act; and “some very 

important issues” such as money market funds and central clearing and credit derivatives. 

“The best advice I can give you is to stay tuned,” said Beswick, referring to further weighing by the 

SEC of a decision on IFRS incorporation. 

Earlier Words From Tweedie, Herz 

In July 2011, in a wide-ranging BNA interview conducted just after his stepping down from the 

helm of IASB, Sir David Tweedie spoke of the need for a signal from the SEC on IFRS 

incorporation. At the time, he predicted “some form of yes” from the agency, amounting to a 

message “that the U.S. is in the game.” 

In April of this year, Tweedie and Robert Herz, FASB's former chairman, concurred in their views 

that clarity from the commission on the future of the international accounting rules in the United 

States was needed. 

Tweedie and Herz spoke at a New York forum of former chairmen of international and national 

standard-setting bodies in accounting. That event also featured Paul Cherry, former chief of 

Canada's Accounting Standards Board. 


The text of the IASB chairman's formal remarks on Dec. 4 at the <strong>AICPA</strong> conference is available at 

http://www.ifrs.org/Alerts/PressRelease/Pages/<strong>AICPA</strong>-Dec-12.aspx. 

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> 



29 

International Standards 

Schapiro Departure Adds to Uncertainty Over Timing of Decision on IFRS Use in US 




The Dec. 14 departure of Securities and Exchange Commission Chairman Mary Shapiro has 

increased the uncertainty over when the commission might consider use of international financial 

reporting standards in the United States, but has not ended the consideration, SEC staff said Dec. 

3. 

The SEC staff told BNA at the American Institute of Certified Public Accountants' <strong>Conference</strong> on 

Current SEC and PCAOB Developments that the timing of IFRS consideration will be up to the 

commissioners under the interim chairmanship of Elisse Walter, but that no one has signaled 

when that would be or where IFRS consideration might fit into the SEC priority list or work plan for 

the coming year. 

Up to Commissioners 

The SEC staff completed its final staff report on work completed so far on issues surrounding 

possible adoption of IFRS for U.S. use, but that report “does not imply, and should not be 

construed to imply” about when or how IFRS can be incorporated into U.S. financial reporting, 

Jenifer Minke-Girard, SEC Senior Associate Chief Accountant in the Office of the Chief 

Accountant, told the conference. 

A decision on how to proceed next is “up to the commissioners,” Minke-Gerard told BNA, and the 

staff has heard no scuttlebutt about when that might be or when the commissioners might ask the 

staff to prepare recommendations for possible SEC adoption. 

Minke-Gerard, who monitors the activities of the Financial Accounting Standards Board and the 

International Accounting standards board for the SEC, gave an overview to the conference of the 

staff's final report that was released in July. 

Schapiro told reporters at the time she had “no time line” for when the SEC might consider IFRS 

adoption. She indicated that the commission was preoccupied with developing rules to implement 

the Dodd-Frank Wall Street reform act and the JOBS Act, which she said “are hugely important 

issues with respect to accounting standards.” 

That continues to be the case at the SEC, staff indicated at the <strong>AICPA</strong> conference. “We need to 

think about what the incentives are to go to IFRS in the U.S.,” said Paul Beswick, the SEC's acting 

chief accountant. 

“I would hope that we would get a better indication of where we are going” with IFRS as the new 

year progresses, Beswick said. “This is always a decision of the commission, and they have got 

quite a lot on their work plate right now, like Dodd-Frank, the JOBS Act, some very important 

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> 



30 

issues like money market funds, central clearing and credit, [and] derivatives. So the best advice 

I can give you is, stay tuned.” 

Important Decision 

“The consideration of incorporating IFRS may be the single most important accounting 

determination for the Commission since the determination to look to the private sector to establish 

accounting standards in the 1930's.” Beswick said “We understand individuals' interest in this 

topic and the potential uncertainty that may exist, but the staff is working to ensure that the 

Commission is properly informed on the issue. Obviously, we will work with our new chairman and 

our existing Commissioners on determining the next steps in this process.” 

Minke-Girard summarized the findings of the July final staff report. That document noted that the 

SEC had thought that FASB and the IASB would have been further along in their convergent 

efforts on four priority items—revenue recognition, leasing, financial instruments, and 

insurance—than when the staff embarked on its work plan to evaluate IFRS for the commission. 

Minge-Girard also noted one of the conclusions of the report—that IASB still does not have a fully 

independent source of funding and continues to rely on voluntary contributions from its 

constituents. 

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> 



31 

Segment <strong>Report</strong>ing 

SEC Staff Urges Comprehensive Story on Segment <strong>Report</strong>ing Decisions 




Financial-report filers need to “tell a complete story” on the reasoning behind their identification of 

their operating segments and any aggregation of them, Securities and Exchange Commission 

Division of Corporation Finance staff members said Dec. 4. 

Filers also should explain how they employed SEC guidance in making their identification and 

aggregation decisions, the staff also said. 

One of Main Triggers 

Mark Shannon, Corp. Fin. Associate Chief Accountant, told the American Institute of Certified 

Public Accountants' <strong>Conference</strong> on Current SEC and PCAOB Developments that incomplete 

descriptions of how filers identified their segments is one of the main triggers of SEC comment 

letters to filers. 

“Comprehensive explanation of how you applied the guidance really goes a long way in enabling 

us to parse through your response” to a comment letter on issues over segment reporting, 

Shannon said. 

If the SEC has questions about how a filer identified an operating segment, filers should discuss 

“how your chief operating decision makers makes his [business segment] allocation decisions or 

assesses performance,” Shannon said. 

With respect to aggregating the performance of different together in the report, “really digging into 

how you applied the guidance in aggregating your operating segments and reportable segments 

really helps us get through the analysis,” Shannon said. “One final point there—if you have any 

outlier or nonrecurring circumstances, make sure you build that into your response so that we 

have the full picture.” 

Monitoring Important 

Filers also must be sure to continue to “monitor your facts and circumstances” of their businesses 

for any changes that would inform the SEC of how why the filer had any potential changes in their 

operating or reportable segments, Shannon said. He cited as examples of changed 

circumstances the acquisition of a business or asset that could trigger the aggregation of a filer's 

operations. 

The Financial Accounting Foundation—the parent organization of the Financial Accounting 

Standards Board—and the International Accounting Standards Board have conducted 

post-implementation reviews of the practical impact on filers of segment-reporting standards, 

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> 



32 

Corp. Fin. Acting Chief Accountant Craig Olinger noted. However, those reviews are still 

undergoing analysis and have so far had little impact on SEC evaluations of how well filers are 

adhering to good segment-reporting practices, Shannon said. 

“Obviously, we're very interested in what the output of those post-implementation reviews are, but 

at this point, I think it's a little premature to speculate what effect, if any, those 

post-implementation reviews will have on our work,” Shannon said. 

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Special Report AICPA National Conference on Current SEC and PCAOB Developments

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