Presentation given last year at an auditing conference

1. Petra Learning LLC
Cookies and Bees
A FASB and SEC Update
July 27, 2012
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2. Purpose and Objectives
Purpose: Inform and Equip
Objectives:
 Provide a fresh look at the impact that
shareholder pressure is having on the
governance and financial reporting as
evidenced through this year’s proxy disclosures
and actions.
 Provide a current view on recently completed
and in-process FASB projects that are rewriting
the financial reporting landscape.
 Provide a peek into at the divergence occurring
in public versus private financial reporting
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3. The Accounting Landscape
Lawmakers
Regulators
Management
InvestorsMedia
Accountants
Directors
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4. Notable Events ….
Shareholder Activism
 Shareholder Activism Alive in 2012 Proxy Season
In late February, it was reported that Apple(AAPL_) agreed to investor demands
requiring a majority share vote in order for any candidate to be elected to its board of
directors -- not just a simple plurality.
 Investor Coalition: WSJ's Attack On Shareholder Activism Sends
"Chilling Message“ (Wellpoint)
“In its May 8, 2012 editorial, the Wall Street Journal's editors conflate shareholders'
call for transparency and accountability in corporate political spending with attacks
on free speech itself.”
 JPMorgan Chase: CEO Jamie Dimon keeps chairman's job in
shareholder vote (but barely with 41% voting to split the CEO /
Chairman role).
 Targeted Vote No Campaigns
“Translation: boards and management are now compelled to answer to
often dissident shareholders demanding greater influence over the
companies in which they invest. In this climate, boards must engage more
directly with investors, and increase the frequency -- and enhance the
quality -- of shareholder communications.”
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5. Corporate Response
 Early vote results show proactive companies secure strong support
amid increased investor scrutiny and targeted activism
◦ Proactive engagement
◦ Pay Reform
◦ Improved messaging in the proxy statement
 Ongoing hot buttons
◦ Environmental issues
◦ Social responsibility
◦ Board accountability
 Emerging issue: corporate political spending and lobbying
Question: Can corporations maintain this momentum in the face of
continued business pressure, political uncertainty, the social media
onslaught, and significant changes in the accounting environment?
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6. FASB Current Activity
Accounting
Standards
(Convergence)
Financial
Reporting
Requirements
Divergence
(Separate
Reporting
Frameworks)
Specialized
Accounting
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7. Disclosure Changes
 Liquidity and Interest Rate Risk Disclosures for
Financial Instruments (Exposure Draft Pending)
◦ Example liquidity disclosures: Liquidity Gap Table,
Cash Flow Obligations (non financial institutions),
Available Liquid Funds, and IFRS 7 Comparison
◦ Eliminated qualitative going concern disclosure
◦ 90-day comment period; prospective application;
effective date undetermined
 Presentation of reclassification adjustments from
Other Comprehensive Income (ASU 2011-05)
◦ Present reclassification adjustments and the effect of
those reclassification adjustments by component of
other comprehensive income in interim and annual
 On the face of the financial statements where net income is presented,
 On the face of the financial statements where other comprehensive income is presented
 Deferred by 2011-12; other requirements of 2011-05 continue to be effective for years
begin after 12/15/2011 for public entities and 12/15/2012 for private
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8. Disclosure Changes
 Fair Value Measurements – Level 3
◦ Quantitative and Qualitative detail
◦ Valuation technique specified
◦ Unobservable inputs specified
◦ Ranges of values specified
 Offsetting Assets and Liabilities
◦ Disclose both gross and net information about
instruments and transactions eligible for offset
in the balance sheet
◦ Disclose collateral received and posted under
master netting agreements
◦ Effective in 2013
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9. Financial Reporting
 Overall Disclosure Framework
◦ Invitation for public comment expected June or July
◦ Project objectives
 Determining what information is essential to investors
 Having preparers consider relevance when preparing
disclosures
 Organizing financial statements in a common sense way
◦ Desired outcome: Effective, coordinated, and less
redundant
◦ Are you prepared for dynamic and scalable
disclosures?
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10. The Public / Private Debate
 Private Company Decision Making Framework
◦ FASB Education Session Held May 12, 2012
◦ Initial draft completed and reviewed by committee
◦ Discussion paper expected by June 30, 2012
◦ Non-authoritative; help facilitate decisions and
drive consistency
◦ Definition of non-public entity added to as a
separate agenda item
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Display
Disclosur
es
Transition
Method
Effective
Date
Recognition
and
Measurement

11. The Public / Private Debate
 Six differential factors
◦ # of financial statement users
◦ Access to management
◦ Investment strategies
◦ Ownership and capital structures
◦ Accounting resources
◦ Learning and education
 Example Recommendations
◦ Effective date: 1 year after 1st annual period
required for public companies
◦ Disclosures: Generally exempts disaggregated
disclosures but also considers need for
incremental / modified disclosures and prohibiting
exemptions for specific disclosures
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12. Not-For-Profit Financial Reporting
Two projects added to the agenda
1. Standard setting project:
◦ Improve current net asset classification scheme
◦ Improve reporting on liquidity, financial performance,
and cash flows
2. Research project
◦ Examine the other means of communications used to
report financial performance to donors, lenders, and
other interested parties
◦ Identify best practices (e.g., discussion and analysis
detail)
Early stages – still defining project plan and
finalizing project team. Board deliberations will
begin in June.
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13. Closing Thoughts
 Convergence and divergence activities
occurring simultaneously
 The financial reporting landscape could
be redefined over the next two years
◦ People impact
◦ Educational impact
◦ Market perception
 Advocacy has never been more
important. Let your voice be heard.
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