<![CDATA[MBAF - Public Company Advisories]]> <![CDATA[Public Company Advisory - President Signs JOBS Act, Which Eases Requirements for Businesses to Raise Capital]]>
Frank Gonzalez
Manuel Pravia

On April 5, President Obama signed the Jumpstart Our Business Startups Act (JOBS Act) which has several provisions that will make it easier for small businesses and entrepreneurs to access capital and help start-up companies and other small businesses carry out initial public offerings (IPOs).

Among its changes, the JOBS Act:

  • Raises from 500 to 1,000 the number of shareholders a company can have before it is required to go public.
  • Permits entrepreneurs to "crowd fund" their businesses, by raising money from large pools of small investors through methods that include the Internet. This is limited to $10,000 or 10 percent of an investor's annual income, whichever is less.
  • Allows companies to raise up to $50 million in share sales without having to register with the Securities and Exchange Commission (SEC). That threshold has been $5 million.
  • Increases the number of shareholders allowed to invest in a community bank from 500 to 2,000

The JOBS Act also creates a new category called "emerging growth companies" that would be exempt from certain regulatory and disclosure requirements for up to five years after filing an IPO. To be eligible, a company must have total annual gross revenue of less than $1 billion.

Regulatory exemptions for emerging growth companies include:

  • They can present only two years of audited financial statements in the IPO of common equity securities.
  • They can exclude certain otherwise required financial data for any period prior to the earliest audited period presented in the IPO.
  • They will not have to comply with the Sarbanes-Oxley Act's Section 404(b), which requires a public company to each year have a public accounting firm review and issue an attestation to the effectiveness of its internal controls.
  • They will not be required to comply with any new or revised Financial Accounting Standard (FAS) until a company that is not a public issuer is required to comply with the standard, if it applies to companies that are not public issuers.

The JOBS Act's provisions on emerging growth companies are effective upon the April 5 enactment of the law. Many of the law's other provisions will be effective upon issuance of rules by the SEC.

If you would like additional information about the JOBS Act and how its rules changes might help your company raise capital in the public markets, do not hesitate to contact our Financial Institutions specialists or call us at 1-800-239-1474.

]]> <![CDATA[Public Company Advisory - SEC Sets Limits on Non-Public Registrations by Foreign Private Issuers]]>
Frank Gonzalez

Foreign entities that are considering registrations for public offerings or for other listings of securities on U.S. markets should be aware that the Securities and Exchange Commission (SEC) has reduced the number of such foreign private issuers (FPIs) that are eligible to submit those registration statements on a non-public basis.

As of an announcement on December 8, 2011, the SEC said its staff will review initial registration statements of foreign issuers that are submitted on a non-public or confidential basis only if the registrant is a foreign government registering its debt securities or if it is an FPI that meets one of these criteria:

  • It is listed or is concurrently listing its securities on a non-U.S. securities exchange
  • It is being privatized by a foreign government
  • It can demonstrate that the public filing of an initial registration statement would conflict with the law of an applicable foreign jurisdiction

In its announcement, the SEC said that historically the majority of FPIs registering securities with it also had or were having their securities traded on a foreign securities exchange, and the foreign market ordinarily did not have a practice of requiring public disclosure of the registration statement before completion of review.

The SEC added that more recently the vast majority of FPIs using this non-public review procedure did not and were not contemplating listing securities outside the United States.

Therefore, the SEC said it believes it is appropriate to limit its policy with respect to the non-public submission of initial registration statements by foreign private issuers.

The SEC defines an FPI as any foreign based or incorporated issuer, other than a foreign government, except one that as of the last business day of its most recently completed second fiscal quarter had more than 50 percent of its outstanding voting securities directly or indirectly owned of record by residents of the United States and meets any of the following criteria:

  • The majority of the executive officers or directors are U.S. citizens or residents
  • More than 50 percent of the assets of the issuer are located in the United States
  • The business of the issuer is administered principally in the United States

If you would like additional information on the SEC's new process for reviewing registrations of foreign private issuers, do not hesitate to contact our SEC Practices specialists or call us at 1-800-239-1474.

]]> <![CDATA[Public Company Advisory - SEC Requires Close Monitoring of Third-Party Pricing Services]]>
Frank Gonzalez
Steven Morrison
Steven Morrison

In recent public statements, two staff officials of the Securities and Exchange Commission provided details of the responsibilities for management of public companies when they use third-party pricing services in determining fair value of investment securities.

The SEC officials said management should ensure that it has a sufficient understanding of their companies' valuation models and inputs used to estimate the values of securities, including valuations provided to them by pricing services. An understanding of those models and inputs is an important part of providing appropriate disclosures in financial statements, the officials added.

During presentations in September and December, the officials emphasized that the SEC feels it is vital for management to have an understanding of their companies' models for determining fair values of Level 2 securities, for which it is sometimes difficult in obtaining reliable comparisons. They noted that Level 2 securities may range from items such as bonds for which quoted prices in active markets are observable for similar instruments to items such as collateralized debt obligations for which the only similar observable transactions are not in active markets.

For several years, many investors and other users of financial statements have been seeking additional clarity from public companies and other issuers of financial statements on methodologies for determining fair value for Level 2 securities and for the less-liquid Level 3 securities

On September 27, Mark Shannon, an associate chief accountant in the SEC's Office of the Chief Accountant, provided an overview on third-party pricing services during a meeting with the Center for Audit Quality's SEC Regulations Committee.

Shannon pointed out that even though third-party sources may provide pricing information, the SEC requires management to still be responsible for determining if the information is in compliance with GAAP and the maintenance of accurate books and records.

That responsibility includes maintaining internal controls to prevent or detect material misstatements related to the fair value measurements and disclosures and for assessing internal control over financial reporting related to fair value measurements, he added.

On December 5, Jason K. Plourde, a Professional Accounting Fellow in the SEC's Office of the Chief Accountant, spoke at the American Institute of Certified Public Accountants' National Conference on Current SEC and Public Company Accounting Oversight Board (PCAOB)Developments.

PIourde said he believes that public company management "is well served" if it considers the following questions when using third party pricing services:

  • Do we have sufficient information about the values provided by pricing services to know that we're complying with GAAP?
  • Have we adequately considered the judgments that have been made by third parties in order to be comfortable with our responsibility for the reasonableness of such judgments?
  • Do we have a sufficient understanding of the sources of information and the processes used to develop it to identify risks to reliable financial reporting?
  • Have we identified, documented, and tested controls to adequately address the risks to reliable financial reporting?

He said that auditors may find these questions informative when considering audit procedures on the measurements and internal controls relating to fair value estimates information from a pricing service is incorporated.

If you would like additional information about the responsibilities of public companies' management in monitoring information provided by third-party pricing services do not hesitate to contact our SEC Practices specialists, or call us at 1-800-239-1474.

]]> <![CDATA[Public Company Advisory - FASB Authorizes Qualitative Approach for Testing Goodwill for Impairment]]>
Frank Gonzalez

The Financial Accounting Standards Board (FASB) on September 15 issued an Accounting Standards Update (ASU) that simplifies how entities are required to test goodwill for impairment. A major change is that public entities and non-public entities, in annual tests of goodwill for impairment, will be allowed to use a qualitative approach in evaluating whether or not impairment exists.

Under US GAAP, entities have been required to test goodwill for impairment with a quantitative approach by first comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit was determined to be less than its carrying amount, the second step of the test would then be performed to measure the amount of impairment loss, if any.

The new ASU, No. 2011-08, Intangibles Goodwill and Other (Topic 350): Testing Goodwill for Impairment, allows an entity to assess qualitative factors first to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under that option, an entity is no longer required to calculate the fair value of a reporting unit unless it determines, based on the qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount.

In a news release the FASB said it issued the ASU to address concerns expressed by private companies about the cost and complexity of goodwill impairment tests under the quantitative approach.

The amendments in the ASU apply to public companies and to non-public companies and are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 with early adoption permitted.

If you would like additional information on the FASB's ASU on testing of goodwill for impairment, do not hesitate to contact our SEC Practices specialists or call us at 1-800-239-1474.

]]> <![CDATA[Public Company Advisory - SEC Proposes to Strengthen Independent Audits of Broker-Dealers]]>
Tony Argiz
Yvette Garcia

The Securities and Exchange Commission on June 15 issued proposed rules that it expects will strengthen the independent audits of broker-dealers, and strengthen the SEC's oversight of the way broker-dealers handle their custody of customers' securities and cash.

In a news release the SEC said the amendments would expand the scope of the external audit by expanding the controls that the broker-dealer has put in place.

In addition, the proposed rules would require broker-dealers that maintain custody of customer assets or self-clear transactions to allow SEC staff and the relevant designated examining authority to review work papers of the public accounting firm that audits the broker-dealer and discuss any findings with the accounting firm.

The proposed rules also would require broker-dealers to each quarter file a new form that would elicit information about the custody practices of the broker-dealer to be used as a starting point for examinations by regulators.

The SEC will accept comments through August 26, 2011. But it did not list a timetable for issuing final rules.

In a related action, the Public Company Accounting Oversight Board (PCAOB) on June 14 adopted a temporary rule to establish an interim inspection program for registered public accounting firms' audits of broker-dealers.

In its announcement the PCAOB said that under the temporary rule it will begin to inspect auditors of broker-dealers and identify and address with auditors any significant issues they find in audits.

The PCAOB said it expects to use insights gained during the interim program in its preparation of a permanent program for inspecting auditors of broker-dealers. The SEC must approve the PCAOB's rules for that program.

If you would like additional information on the SEC's proposed rules and on the PCAOB's interim program on audits of broker-dealers, do not hesitate to contact us at 1-800-239-1474.

]]> <![CDATA[Public Company Advisory - FASB Issues ASU on Presentation of Comprehensive Income]]>
Yvette Garcia

The Financial Accounting Standards Board (FASB) on June 16 issued an Accounting Standards Update (ASU) that is aimed at improving the presentation of comprehensive income and increases the prominence of other comprehensive income in financial statements.

Accounting Standards Update (ASU) No. 2011-05 Comprehensive Income (Topic 220): Presentation of Comprehensive Income will supersede some of the guidance in Topic 220 of the accounting Codification. It is applicable to public entities and nonpublic entities.

In a news release, the FASB said that the main provisions of the ASU provide that an entity that reports items of other comprehensive income has the option to present comprehensive income in either a single statement or in two consecutive statements:

  • A single statement must present the components of net income and total net income, the components of other comprehensive income and total other comprehensive income and a total for comprehensive income.
  • A two-statement approach must present the components of net income and total net income in the first statement. That statement must be immediately followed by a statement that presents the components of other comprehensive income, a total for other comprehensive income, and a total for comprehensive income.

The amendments in the ASU should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. For nonpublic entities, they are effective for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. Early adoption is permitted.

If you would like additional information on ASU 2011-05 on the presentation of comprehensive income do not hesitate to contact us at 1-888-239-1474.

]]> <![CDATA[Public Company Advisory - SEC Staff Suggests Method for Integration of IFRS into US System]]>
Frank Gonzalez
Steven Morrison

The Securities and Exchange Commission (SEC) on May 26 issued a Staff Paper that provides details on what it calls a "possible method" for integrating International Financial Reporting Standards (IFRS) into the US financial reporting system.

The Staff Paper reviews a possible incorporation of IFRS into US GAAP over a period of time with the Financial Accounting Standards Board (FASB) remaining as a figurative gatekeeper to modify IFRS rules for US issuers.

In the Introduction, the SEC said: "The Staff's discussion in this Staff Paper is not intended to suggest that the Commission has determined to incorporate IFRS or that the discussed framework is the preferred approach or would be the only possible approach."

The Staff Paper's framework is predicated on these principles:

  • US GAAP would be retained. However, over a defined period of time, the FASB would incorporate IFRS into US GAAP. In this process, there would be a focus on minimizing transition costs (particularly for smaller issuers).
  • Through an endorsement protocol, the FASB would incorporate newly issued or amended IFRS standards into U.S. GAAP. The SEC Staff will accept comments on the views of constituents and other possible approaches regarding incorporation through July 31.

The FASB and the International Accounting Standards Board (IASB) have established the second half of 2011 as a target date for completing certain major projects related to convergence of IFRS and US GAAP.

If you would like additional information on the SEC Staff Paper and on other aspects of the pending convergence of US GAAP and IFRS, do not hesitate to contact us at 1-800-239-1474.

]]> <![CDATA[Public Company Advisory - SEC Requires Smaller Public Companies to Begin Using XBRL in Filings]]>
Frank Gonzalez

Beginning with their reports for periods ending after June 15, 2011 almost all smaller public companies will be required to use the XBRL fomat (eXtensive Business Reporting Language) in their filings with the Securities and Exchange Commission.

The SEC had previously implemented the XBRL filing requirement for larger public companies. For many such filers, the "Interactive Data" from XBRL is already available on EDGAR and works to improve the usefulness of the information in the filings.

In a "Summary of XBRL Information for Phase 3 Filers", the SEC provides details on the benefits of XBRL in general and the benefits to smaller issuers of having had a phased implementation. Staff interpretations and frequently asked questions are also provided.

In the summary, the SEC explains the general concept of "tagging" data in the filing to the US GAAP taxonomy. Through software or third-party service providers, the tagged information is then attached to the filer’s financial information.

In noting its reasons for the implementation of XBRL, the SEC said "XBRL helps to provide investors access to financial information in a form that's ready for analysis, and can help companies automate checks on the data quality in their reports."

The SEC Web site also has a section that includes links to sources of information about XBRL technology.

If you would like additional information about the SEC’s XBRL requirements, do not hesitate to contact us at 1-800-239-1474.

]]> <![CDATA[Public Company Advisory - FASB and IASB Issue Guidance on Common Fair Value and Disclosure]]>
Frank Gonzalez
Steven Morrison

The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) on May 12 issued joint guidance on fair value measurement and disclosure requirements for US generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS).

For US companies, the FASB guidance is Accounting Standards Update (ASU) No. 2011-04 (the Update).

In a news release, the FASB and the IASB said that many of the changes for US companies are clarifications of existing guidance or wording changes to align with IFRS 13 Fair Value Measurement which the IASB issued on May 12.

They said that issuance of the guidance completes a major project of the boards' joint work to improve IFRS and US GAAP and to bring about their convergence.

The Update does not extend the use of fair value accounting, but instead provides guidance on how fair value should be applied where its use is already required or permitted by other standards within IFRS or US GAAP.

For US GAAP the Update will supersede most of the guidance in Topic 820, which was preceded by Statement of Financial Accounting Standards No. 157 prior to the FASB Codification.

The Update is to be applied prospectively. For public entities, the Update is effective during interim and annual periods beginning after December 15, 2011 with early application prohibited. Non-public entities may apply the Update early, but no earlier than for interim periods beginning after December 15, 2011.

If you would like additional information on the FASB/IASB guidance on common fair value measurement and disclosure requirements, do not hesitate to contact us at 1-800-239-1474.

]]> <![CDATA[Public Company Advisory - FASB Proposes Changes in Testing of Goodwill for Impairment]]>
Frank Gonzalez
Steven Morrison

The Financial Accounting Standards Board (FASB) on April 22 issued an Exposure Draft of a proposed Accounting Standards Update (ASU) that is intended to simplify how entities are required to test goodwill for impairment. The major change would be allowing a qualitative approach in evaluating whether or not impairment exists.

Current US GAAP requires an entity to test goodwill for impairment, on at least an annual basis, by first comparing the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit is determined to be less than its carrying amount, the second step of the test would then be performed to measure the amount of impairment loss, if any.

In a news release, the FASB said that "under the proposed amendments an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount."

The proposed ASU would allow an entity to assess qualitative factors first to determine whether it is necessary to perform the two-step quantitative goodwill impairment test.

If approved, the amendments in the proposed ASU would apply to public companies and to non-public companies and would be effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 with early adoption permitted.

If you would like additional information on the FASB's proposed ASU on testing of goodwill for impairment, do not hesitate to contact us at 1-800-239-1474.

]]> <![CDATA[Public Company Advisory - FASB Issues Accounting Standards Update on Repurchase Agreements]]>
Frank Gonzalez
Steven Morrison

The Financial Accounting Standards Board (FASB) on April 29 issued an Accounting Standards Update (ASU) that indicates it is intended to improve financial reporting of repurchase agreements, also known as "repos," and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity.

In a major change, the ASU provides a new determination of when an entity may or may not recognize such agreements as sales. Typically, in a repo transaction, an entity will transfer financial assets to a counterparty in exchange for cash with an agreement for that counterparty to return the same or equivalent financial assets for a fixed price in the future.

In a news release the FASB noted that under Generally Accepted Accounting Principles the determination of when an entity may or may not recognize a sale upon the transfer of financial assets subject to repo agreements has been based, in part, on whether the entity has maintained effective control over the transferred financial assets.

The new ASU removes from the assessment of effective control the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets, as well as the collateral maintenance implementation guidance related to that criterion.

The amendments in the ASU are effective for the first interim or annual period beginning on or after December 15, 2011, and should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted.

If you would like additional information on the FASB’s Accounting Standards Update on repurchase agreements, do not hesitate to contact us at 1-800-239-1474.

]]> <![CDATA[Public Company Advisory - FASB Clarifies Requirements for Disclosures on Combinations]]>
Frank Gonzalez
Steven Morrison

The Financial Accounting Standards Board (FASB) on December 21, 2010 issued an Accounting Standards Update that clarifies the requirements for public companies on the disclosure of pro forma information for business combinations occurring in a current reporting period.

Accounting Standards Update No. 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations specifies that, when presenting pro forma information, if a public company presents comparative financial statements the entity should disclose revenue and earnings of the combined entity as though the business combination or combinations occurring during the current year had occurred only as of the beginning of the comparable annual reporting period.

The FASB said it issued the Update because there has been diversity in practice in the way that public companies had presented pro forma information after business combinations.

It said that in practice, some preparers have presented the pro forma information in their comparative financial statements as if the business combination that occurred in the current reporting period had occurred as of both the beginning of each of the current and prior annual reporting periods. Conversely, other preparers have disclosed the pro forma information as if the business combination occurred only at the beginning of the prior annual reporting period, and then carried forward the related adjustments through the current reporting period.

ASU 2010-29 is effective prospectively for business combinations where the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010.

If you would like additional information on the Accounting Standards Update on disclosure requirements of pro forma information on business combinations, do not hesitate to contact us at (305) 373-5500.

]]> <![CDATA[Public Company Advisory - FASB and IASB Release Details on Progress of Convergence]]>
Frank Gonzalez
Steven Morrison

On November 29, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) issued a Progress Report with details of how they intend to complete the priority projects for their planned convergence of US GAAP and International Financial Reporting Standards.

The FASB and the IASB said that the target completion date for their priority projects remains June 2011 or earlier, and that those projects include:

  • Joint projects on financial instruments, revenue recognition, leases, the presentation of other comprehensive income, and fair value measurements
  • For the IASB, improved disclosures about derecognized assets and other off-balance-sheet risks (aligning with recently issued US GAAP requirements), consolidations (particularly in relation to structured entities) and its project on insurance contracts.

To accommodate the goal of completing the aforementioned priority projects by June 2011, the FASB and the IASB amended aspects of their strategies and plans for other projects. Those changes were indicated as:

  • Deferring until after June 2011 substantive deliberations on four projects: the broader financial statement presentation project; financial instruments with characteristics of equity; emissions trading schemes; and the reporting entity phase of the conceptual framework.
  • Agreeing that consolidation of investment companies is no longer a priority for June 2011. The boards aim to complete that joint project by the end of 2011.
  • Deferring deliberations on several of each board's independent standards-setting projects.
  • The impact of the pending convergence means that U.S. public companies should expect some to-be-determined changes in existing US GAAP standards and a possible shift to IFRS.

If you would like additional information on the latest FASB-IASB Progress Report and on other aspects of the convergence of GAAP and IFRS, do not hesitate to contact us at (305) 373-5500.

]]> <![CDATA[Public Company Advisory - FASB and IASB Complete First Phase in Convergence Project]]>
Frank Gonzalez
Steven Morrison
The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) on September 28 announced the completion of the first phase of their joint project to develop an improved conceptual framework for US Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS).
 

In completing the first phase, the FASB released Statement of Financial Accounting Concepts No. 8, Conceptual Framework for Financial Reporting.

The Concept Statement, which supersedes two previous Concept Statements, addresses the objective and qualitative characteristics of financial reporting. Although Concept Statements are not a part of the Codification, the FASB uses them as guiding principles in its development of Accounting Standards Updates.

The release of Statement on Financial Accounting Concepts No. 8 is part of the joint project of the FASB and IASB for convergence of US GAAP with IFRS.

The FASB and the IASB have been working on a convergence project and on June 2, 2010 the FASB and the IASB announced that they have established the second half of 2011 as a new target date for completing certain major projects related to the convergence.

The impact of the pending convergence means that U.S. public companies should expect some to-be-determined changes in existing US GAAP standards and a possible shift to IFRS.

If you would like additional information on the FASB Statement on Conceptual Framework for Financial Reporting and on other aspects of the convergence of GAAP and IFRS, do not hesitate to contact us at (305) 373-5500.
]]> <![CDATA[Public Company Advisory - PCAOB Adopts New Auditing Standards Related to Risk Assessment]]>
Frank Gonzalez

The Public Company Accounting Oversight Board (PCAOB) on August 5 adopted eight auditing standards related to an auditor’s assessment of, and response to, the risk of material misstatement in an audit.

In a news release, the PCAOB said that the new Auditing Standards (No. 8 through No. 15) set forth "requirements that enhance the effectiveness of the auditor’s assessment of, and response to, the risks of material misstatement in the financial statements."

The standards, if approved by the SEC, will become effective for audits of fiscal periods beginning on or after December 15, 2010. Thus, the standards will be in effect for audits of entities with calendar year ends of December 31, 2011.

With the changes, public companies may see some of the audit process modified as auditors implement the new auditing standards.

In its news release, the PCAOB said that the risk assessment standards address audit procedures performed throughout the audit, from the initial planning stages through the evaluation of the audit results."

The news release provides details of the eight new auditing standards.

The standards pertain to:

  • Audit Risk
  • Audit Planning
  • Supervision of the Audit Engagement
  • Consideration of Materiality in Planning and Performing an Audit
  • Identifying and Assessing Risks of Material Misstatement
  • The Auditor’s Response to the Risks of Material Misstatement
  • Evaluating Audit Results
  • Audit Evidence
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