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New FASB Standards Codification: Are You Ready?

Leveraging Essential and Non-Essential Guidance to Prepare GAAP Statements and Footnotes

presents

Today's panel features:Tom Hoey, Project Director, FASB Codification Project, Financial Accounting Standards Board, Norwalk, Conn.

Nelson Haight, Shareholder, GBH CPAs PC, HoustonMichael Westervelt, Manager, Assurance and Accounting Quality Group, LarsonAllen, Charlotte, N.C.

Gordon Weber, Partner, Corporate Group, Faegre & Benson, Minneapolis

Wednesday, October 14, 2009

The conference begins at:1 pm Eastern12 pm Central

11 am Mountain10 am Pacific

The audio portion of this conference will be accessible by telephone only. Please refer to the dial in instructions emailed to registrants to access the audio portion of the conference.

A Live 110-Minute Teleconference/Webinar with Interactive Q&A

New FASB Accounting StandardsNew FASB Accounting StandardsCodificationCodificationTMTM:: Are You Ready? WebinarAre You Ready? Webinar

Oct. 14, 2009Oct. 14, 2009

Explanation Of FASB CodificationExplanation Of FASB CodificationBy Director Of FASB Codification And XBRL ProjectsBy Director Of FASB Codification And XBRL Projects

ThomasThomas HoeyHoey, Thomas, Thomas HoeyHoey & Associates, LLC& Associates, LLChoeytjhoeytj@@thoeythoey.com.com

Slide Slide 22

TodayToday’’s Agendas Agenda

BackgroundBackground–– Overview and timingOverview and timing–– Why codify?Why codify?–– What was codified?What was codified?–– How is the Codification structured?How is the Codification structured?–– How will FASB update the Codification?How will FASB update the Codification?WalkWalk--throughthrough

Slide Slide 33

OverviewOverviewSingle source of Single source of authoritativeauthoritative U.S. GAAP for nonU.S. GAAP for non--governmental entities in a topically organized formatgovernmental entities in a topically organized format–– Major restructuring into roughly 90 topicsMajor restructuring into roughly 90 topics–– Codifies previous level ACodifies previous level A--D GAAP issued by a standardD GAAP issued by a standard--settersetter–– Supersedes previous level aSupersedes previous level a--d GAAP issued by a standard d GAAP issued by a standard

setter, except for guidance issued by the SECsetter, except for guidance issued by the SEC

Not intended to change U.S. GAAPNot intended to change U.S. GAAP

Eliminates the multipleEliminates the multiple--tiered U.S. GAAP hierarchy in favor of tiered U.S. GAAP hierarchy in favor of two levels: authoritative and nontwo levels: authoritative and non--authoritativeauthoritative

Any sources of U.S. GAAP not included in the Codification are Any sources of U.S. GAAP not included in the Codification are nonnon--authoritative, except for grandfathered guidanceauthoritative, except for grandfathered guidance

In addition to the Codification content, there is an online In addition to the Codification content, there is an online Codification Research System designed to improve the Codification Research System designed to improve the usability of authoritative U.S. GAAP usability of authoritative U.S. GAAP

Slide Slide 44

TimingTiming

Authoritative version was made available Authoritative version was made available July 1, 2009July 1, 2009

Codification is effective for interim and Codification is effective for interim and annual periods ending after Sept. 15, 2009 annual periods ending after Sept. 15, 2009

Why Codify?Why Codify?

Slide Slide 55

Slide Slide 66

Accounting BC (Before Codification)Accounting BC (Before Codification)

Accounting Research BulletinsAccounting Principles Board Opinions

AICPA Accounting Interpretations

FASB Statements FASB Interpretations

FASB Technical Bulletins

FASB Staff Implementation Guidance

FASB Staff Positions

FASB Concepts Statements

EITF Abstracts (and issue summaries)

EITF Appendix D

AICPA Statements of Position

AICPA Audit and Accounting Guides

AICPA Audit Risk Alerts

AICPA Practice Bulletins

AICPA Technical Questions and Answers

AICPA Issues Papers

SEC S-X Rules SEC S-K Items

SEC ASR / FRR Codification SectionsSEC SAB Codification Topics

SEC Speeches—Topics Covered

Note: Not all of the above were level A-D GAAP and therefore were not in the FASB Accounting Standards Codification

77

Why Codify?Why Codify?

Constituent concern that U.S. GAAP was Constituent concern that U.S. GAAP was overly confusing and difficult to researchoverly confusing and difficult to research–– Multiple standardMultiple standard--setters, multiple types of setters, multiple types of

standards, multiple indexing schemes, different standards, multiple indexing schemes, different levels of authority, not integrated, etc.levels of authority, not integrated, etc.

GoalGoal–– Simplify user access by codifying all authoritative Simplify user access by codifying all authoritative

U.S. GAAP in one spotU.S. GAAP in one spot

Slide Slide 88

Codified ContentCodified ContentAddressed in detail in the Notice to ConstituentsAddressed in detail in the Notice to ConstituentsCodification Codification includesincludes–– Authoritative guidance Authoritative guidance

For example, standards sections, implementation guidance, and soFor example, standards sections, implementation guidance, and so forthforth–– Selected portions from Basis for ConclusionsSelected portions from Basis for Conclusions–– AICPA TIS content for Software Revenue RecognitionAICPA TIS content for Software Revenue Recognition

Codification Codification excludesexcludes–– Content deemed redundant or nonContent deemed redundant or non--authoritative authoritative

For example, much of basis for conclusionsFor example, much of basis for conclusionsConcept StatementsConcept Statements

–– Grandfathered content Grandfathered content –– Certain soonCertain soon--toto--be superseded content (e.g., FAS 141)be superseded content (e.g., FAS 141)

Slide Slide 99

Codified Content Codified Content –– SECSECSEC content is the domain of the SEC SEC content is the domain of the SEC

SEC content included in Codification topics, but SEC content included in Codification topics, but in separate SEC sections in separate SEC sections –– SEC guidance is required only for SEC registrantsSEC guidance is required only for SEC registrants–– Many private companies do not want SEC guidanceMany private companies do not want SEC guidance

SEC Material sections include the full text of the SEC Material sections include the full text of the relevant guidancerelevant guidance

Slide Slide 1010

How Is The Codification How Is The Codification Structured?Structured?

Terminology is important for effective communicationTerminology is important for effective communicationAreas: Areas: Five groupings of topicsFive groupings of topics–– General PrinciplesGeneral Principles–– PresentationPresentation–– Financial Statement AccountsFinancial Statement Accounts

Assets, liabilities, equity, revenue, expenseAssets, liabilities, equity, revenue, expense–– Broad TransactionsBroad Transactions

Business combinations, leases, etc.Business combinations, leases, etc.–– Industry Industry

Topics: Topics: Broadest categorization of related contentBroadest categorization of related contentSubtopics: Subtopics: Generally distinguished by type or scopeGenerally distinguished by type or scopeSections:Sections: Nature of the content, such as recognition, Nature of the content, such as recognition, measurement, disclosure, and so forthmeasurement, disclosure, and so forthSubsections: Subsections: Allows further segregation and navigation Allows further segregation and navigation of contentof content

Slide Slide 1111

ExampleExampleTopic

Subtopics

Sections

Subsections

Leases

Scope Disclosure ScopeScope DisclosureDisclosure

CapitalLeases

OperatingLeasesOverall

Lessees

Lessors

Note: This is for illustration only and does not include all Topics, Subtopics, Sections and Subsections.

Lessees

Lessors

LesseesLessees

LessorsLessorsLessorsLessors

LesseesLessees

Slide Slide 1212

How Will FASB Update The How Will FASB Update The Codification?Codification?

Through FASB Statement 168, Codification updates integrated Through FASB Statement 168, Codification updates integrated standards on an afterstandards on an after--thethe--fact basisfact basisBeginning with the effective date Beginning with the effective date –– FASB will issue the results of standards activity as an FASB will issue the results of standards activity as an Accounting Accounting

Standards UpdateStandards Update numbered as Year numbered as Year –– Sequence (such as, 2009Sequence (such as, 2009--05) 05) that includes:that includes:

Summary and basis for conclusionsSummary and basis for conclusionsCodification update instructionsCodification update instructions

–– The FASB will update the Codification concurrent with the releasThe FASB will update the Codification concurrent with the release of a e of a Accounting Standards UpdateAccounting Standards Update

–– Proposed Proposed Accounting Standards UpdatesAccounting Standards Updates will be exposed with the will be exposed with the proposed Codification update instructionsproposed Codification update instructions

–– The The Accounting Standards UpdatesAccounting Standards Updates will not be authoritative in their own will not be authoritative in their own rightright

Current and transitional text presented together to ensure accesCurrent and transitional text presented together to ensure access to s to all relevant content in the same locationall relevant content in the same location

Slide Slide 1313

WalkWalk--ThroughThrough

FASB FunctionalityFASB FunctionalityThe functionality demonstrated today is from the FASB The functionality demonstrated today is from the FASB Codification Professional View at Codification Professional View at –– http://http://ascasc..fasbfasb.org.org–– Other access Other access –– Basic View (free) and Academic AccessBasic View (free) and Academic Access

The best way to gain a good understanding is to take the The best way to gain a good understanding is to take the online tutorialonline tutorial–– Only 20 minutes (audio, animation, no questions)Only 20 minutes (audio, animation, no questions)

Important pointImportant point–– The FASB licenses the content to various organizations for theirThe FASB licenses the content to various organizations for their

research systemsresearch systems–– Other research systems may not have certain features contained Other research systems may not have certain features contained

on the Codification web siteon the Codification web site

Slide Slide 1414

Slide Slide 1515

Browse

Go To

Search

TutorialNotice to Constituents

How Will Users LocateHow Will Users LocatePrevious Standards?Previous Standards?

Constituents need a means of identifying Constituents need a means of identifying where previous level awhere previous level a--d GAAP resides in d GAAP resides in the Codificationthe CodificationCodification Research System provides a Codification Research System provides a mapping of the previous level amapping of the previous level a--d d standards to the Codificationstandards to the Codification–– CrossCross--reference featurereference feature–– PrinterPrinter--friendly with sourcesfriendly with sources

Slide Slide 1616

Locate Previous Standards: Locate Previous Standards: CrossCross--Reference FeatureReference Feature

Slide Slide 1717

Locate Previous Standards: Locate Previous Standards: PrinterPrinter--Friendly With Friendly With

SourcesSources

Slide Slide 1919

<<

Printer Friendly with Sources

[EITF D-080, paragraph 1, sequence 62]

Research ModelResearch Model–– Broad research Broad research -- Start by browsing topics, not by searchingStart by browsing topics, not by searching–– Consider the nature of the issue and select the related SectionConsider the nature of the issue and select the related Section–– Use Table of Contents that vary by content on selected pageUse Table of Contents that vary by content on selected page

Section NavigationSection Navigation–– Section linksSection links–– Join All Sections Join All Sections –– to view entire Subtopicto view entire Subtopic–– Locating your PositionLocating your Position

What Links HereWhat Links Here–– For example, identify all paragraphs related to a transition parFor example, identify all paragraphs related to a transition paragraphagraph

Printing Printing –– Available in page functionsAvailable in page functionsGlossary Glossary –– Multiple termsMultiple termsGeneral Notes General Notes –– Fair value option, etc.Fair value option, etc.SEC MaterialSEC MaterialAccounting Standards Updates and Exposure DraftsAccounting Standards Updates and Exposure Drafts

Some Tips For UsersSome Tips For Users

Slide Slide 2222

Slide Slide 2323

Research ModelResearch Model

Broad researchBroad research–– Start by browsing topics, not by searchingStart by browsing topics, not by searching–– Consider the nature of the issue and then Consider the nature of the issue and then

select the related Sectionselect the related Section–– Use the Table of Contents to browse the Use the Table of Contents to browse the

paragraph headingsparagraph headingsNarrow researchNarrow research–– Use text search to find specific terms or Use text search to find specific terms or

phrasesphrases

Locate the topic and subtopic

Areas

Topics

Subtopics

<

Consider the nature of the

issue

Use Table of Contentsto narrow the list

Section Navigation: Section Navigation: Section LinksSection Links

Slide Slide 2727

Section Navigation: Section Navigation: Join All SectionsJoin All Sections

Slide Slide 2929

Section Navigation: Section Navigation: Locating your PositionLocating your Position

Slide Slide 3131

What Links HereWhat Links Here

Slide Slide 3333

Printing: Page FunctionsPrinting: Page Functions

Slide Slide 3737

<

Glossary: Multiple TermsGlossary: Multiple Terms

Slide Slide 3939

DEFINITION 1

DEFINITION 2

General NotesGeneral Notes

Slide Slide 4343

SEC Material

Slide Slide 4747

4848

Accounting Standards Updates And Exposure

Drafts

Slide Slide 4949

5050

Exposure Drafts

Accounting Standards Updates

Pre-Codification Standards

5151

5252

ContentContent–– Gaps: Authoritative GAAP does not address all GAAPGaps: Authoritative GAAP does not address all GAAP–– Industries: Contain incremental guidance onlyIndustries: Contain incremental guidance only–– FASB will address cases where codification process may FASB will address cases where codification process may

have changed GAAPhave changed GAAP

FeaturesFeatures–– Archive: Able to compare versionsArchive: Able to compare versions–– WhatWhat’’s New: Displays activity by date or topics New: Displays activity by date or topic–– Annotations: Place personal notesAnnotations: Place personal notes

PrintPrint–– FASB plans to issue the Codification in printFASB plans to issue the Codification in print

Other Related MattersOther Related Matters

Slide Slide 5353

XBRL TaxonomyXBRL Taxonomy

FASB provided Codification references to FASB provided Codification references to XBRLXBRL--US. The references were posted in US. The references were posted in August as an extension fileAugust as an extension fileThe Codification references are a The Codification references are a replacement for the superseded legacy replacement for the superseded legacy referencesreferencesCodification includes an XBRL Section Codification includes an XBRL Section and shows all XBRL elements related to a and shows all XBRL elements related to a paragraphparagraph

Slide Slide 5454

1New FASB Accounting Standards Codification: Are You Ready? Webinar

Oct. 14, 2009

Approaches For Regular Research

Nelson Haight, GBH CPAs, PCnhaight@gbhcpas.com

2

The release of the ASC:

Simplified and streamlined the body of authoritative U.S. GAAP

Did not change U.S. GAAP

Did change the way we research, cite and keep current with evolving standards

www.gbhcpas.com

What Happened

On July 1, 2009, the body of U.S. GAAP literature changed with the Financial Accounting Standards Board’s (FASB) release of the Accounting Standards Codification™(ASC)

3

Accessing The ASC

• Access can be found at http://asc.fasb.org

• Two ‘views’ are available:− The “Basic” view, which is a free view without research tools or

other functionality

− The “Professional” view, which is a subscription service that provides more functionality and capability, including, among other things, the ability to: Join sections and combine subsections for viewing selected

excerpts Cross-reference to legacy standards Additional print functions

• The following examples assume you have access to more than the Basic view, either through the FASB site or another research tool

4

When To Use The ASC

• When and how to utilize or reference the ASC will depend upon the circumstances

• Circumstances where accessing the ASC would be appropriate include:− Updating an existing footnote for the new references in the ASC

after Sept. 15, 2009− Researching the accounting and required disclosures for a new

transaction or event− Verifying existing disclosures and accounting treatment are current

5

Updating Legacy Disclosures For U.S. GAAP References

• Plain English disclosures are encouraged; however, in some instances, it’s easier to reference the U.S. GAAP literature rather than describe the accounting in the footnote

• For example, EITF 00-19: Accounting for Derivative Financial Instruments indexed to, and Potentially Settled in, a Company’s Own Stock, is probably a poor candidate for plain English disclosure, given its complexity

• In this instance, updating any references to 00-19 with the new ASC references is probably preferable and easier

• So, what is the easiest way to do that?

6

Updating Legacy Disclosures For U.S. GAAP References

(Cont.)Cross-Reference Tool• Assuming the literature sited is still applicable, the easiest route is to

use the Cross-Reference function, an option available within the ASC Research System as a tab at the home page

• The Cross-Reference function allows the user to enter the legacy U.S. GAAP reference and function, which will then return the ASC reference information and vice versa

• Most users will probably utilize the legacy U.S. GAAP reference to ASC reference function

• See the following example:

7

Updating Legacy Disclosures For U.S. GAAP References

(Cont.)

8

Accounting And Required Disclosures

9

Accounting And Required Disclosures (Cont.)

10

Accounting And Required Disclosures (Cont.)

• If you generally know the literature you need to look at, and you know the legacy U.S. GAAP references, the Cross-Reference function previously discussed can also be useful

11

Referring Outside The ASC

• Public companies− ASC includes references to some of the SEC rules and staff

guidance related to basic financial statements (i.e. Regulation S-X, Financial Reporting Releases, Staff Accounting Bulletins, etc.)

− However, the ASC is not a complete or authoritative source for SEC rules and guidance

− Users of the ASC who work in the public company realm should continue to refer directly to the SEC body of literature to ensure accounting, classification and disclosures comply with SEC rules as well For example, SAB Topic 14 – Share-Based Payment expresses

the views of the staff regarding valuation of share-based payment arrangements for public companies

12

Referring Outside The ASC (Cont.)

• Industry practices− Specific industries have specific practices that are generally

accepted but not included in the ASC− Depending on your industry, you may need to look outside the ASC

for further guidance Oil and gas and real estate are examples of industries where non-

authoritative guidance might apply

13

The Bottom Line

• To summarize, the ASC:− Simplified and streamlined the body of authoritative U.S. GAAP− Changed the way users and preparers will research and cite

accounting standards

• To effectively utilize the ASC:− Subscribe to either the professional view of the FASB ASC

Research System or a similar third-party tool, in order to access the enhanced research features

− Review your existing accounting policies now and determine wherethat literature resides in the ASC

− Begin experimenting now with the ASC

14

The Bottom Line (Cont.)

• The ASC should simplify the preparation of financial statements and research of accounting issues

• It should be viewed as a gift, but like an iPOD, it takes getting used to

• However, once you know how to use the ASC, it’s hard to understand what life was like before it came into existence

1

New FASB Accounting Standards Codification: Are You Ready? Webinar

References To GAAP Under FASB ASC

Michael Westervelt, LarsonAllen

mestervelt@larsonallen.com

2

Learning Objectives

At the end of this session you will be:

1. Informed of the effective dates of the FASB Accounting StandardsCodification

2. Made aware of presentation considerations for referencing standards in disclosures, footnotes, work papers, letters, etc.

3. Able to consider updating your deliverables to include more “plain English” wording rather than using specific reference to standards

3

FASB Accounting Standards Codification• On July 1, 2009, the FASB Accounting Standards Codification became the

single authoritative source of non-governmental U.S. GAAP (other than guidance issued by the SEC). After this date, any guidance not included in the Codification will be considered non-authoritative

• The Codification is effective for interim and annual periods ending after Sept. 15, 2009

• The online Codification doesn’t change GAAP, but it restructures the way it is organized. The goal is to make information easier to find, and in turn, make it easier to comply with the accounting standards. This change affects financial statement preparers, auditors, analysts and academics alike

• As of July 1, 2009, FASB will no longer issue statements, interpretations, staff positions or EITF abstracts. Irrespective of how they would have been issued under the prior structure, all changes to GAAP will be issued in the form of Codification updates. New standards will be organized under the same section headings as those used in the Codification

4

Goals Of The Codification

• Simplify user access to all authoritative U.S. GAAP

• Reduce the amount of time and effort required to solve an accounting research issue

• Mitigate the risk of non-compliance with standards through improved usability of the literature

• Provide accurate information with real-time updates as new standards are released

5

Codification - Structure And Reference

• The Codification is organized by topics, subtopics, sections andparagraphs. For example, SFAS 34, Capitalization of Interest, paragraph 9, addresses assets qualifying for interest capitalization. This information is included in the Codification and referenced as FASB ASC 835-20-15-5

– Topic 835 — Interest

– Subtopic 835-20 — Capitalization of Interest

– Section 835-20-15 — Scope and Scope Exceptions

– Paragraph 835-20-15-5 — Assets for Which Interest Shall Be Capitalized

6

Referencing The Codification In Financials

• For periods ending after Sept. 15, 2009, you should no longer reference prior FASB statements, FINs, EITFs, etc.

• FASB encourages the use of plain English to describe references in the future

7

Referencing The Codification In Financials (Cont.)

• Audit, attest or compilation and review work papers associated with financial statements for a period ending after Sept. 15, 2009 would also reflect the Codification, since the underlying financial statements (the subjects of those engagements) reference the Codification

• If an entity continues to follow grandfathered guidance not included in the Codification, you would still reference those standards (and not FASB ASC). An explanation and a partial listing of grandfathered guidance is included in FASB Statement No. 168

8

Referencing Accounting Standards

Periods ending before Sept. 15, 2009• There is no requirement to make reference to specific accounting standards

in financial statement disclosures, although it may be difficult to avoid references when disclosing the adoption of new standards. Entities may continue to make reference to pre-Codification standards when referencing GAAP for periods ending prior to the effective date of the Codification

• Entities may choose to provide references to both prior GAAP and the Codification when preparing financial statements with a period-end before the effective date. Entities may want to avoid only referencing the Codification, because the basis for preparing these financial statements would be pre-Codification GAAP

9

Referencing Accounting Standards (Cont.)

Periods ending after Sept. 15, 2009

• For periods ending after Sept. 15, 2009, references to pre-Codification GAAP should be replaced with references to the Codification

• For comparative financial statements, entities may choose to provide references to both the Codification and pre-Codification GAAP, because the basis of the prior-year financial statements was pre-Codification GAAP. This presentation may make financial statements verbose, so consider referencing only the Codification

10

Disclosure Example

Previously we used this:• The Company has elected to defer application of FASB Interpretation No.

48, Accounting for Uncertainty of Income Taxes. The Company follows Statement of Financial Accounting Standards No. 5, Accounting for Contingencies, in evaluating uncertain tax positions.

Potential change:• The Company has elected to defer the provisions of uncertain tax positions

as addressed in FASB ASC 740-10-65-1. The Company follows FASB ASC 450-20, in evaluating uncertain tax positions.

11

Disclosure Example (Cont.)

Now, in plain English:

• The Company has elected to defer guidance in the income tax standard regarding recognition and measurement of uncertain tax positions. The Company follows the accounting standard for contingencies, in evaluating uncertain tax positions.

12

Additional Consideration - Old Footnote

ContingenciesIn accordance with SFAS No. 5, Accounting for Contingencies, the Company records accruals for such contingencies when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated based on historical claim activity and loss development factors. There can be no assurance there will not be an increase in the scope of these matters or that any future or pending lawsuits, claims, proceedings, or investigations will not be material. Ultimately, settlement of such contingencies could be significantly different from the estimated amounts accrued at December 31, 2008.

13

New Footnote

ContingenciesThe Company records accruals for contingencies when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated based on historical claim activity and loss development factors. There can be no assurance there will not be an increase in the scope of these matters or that any future or pending lawsuits, claims, proceedings, or investigations will not be material. Ultimate settlement of suchcontingencies could be significantly different from the estimated amounts accrued at December 31, 2009.

14

Old Footnote

Long-lived assetsUnder the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company evaluates its long-lived assets for impairment as events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. In such circumstances, the Company evaluates the recoverability of long-lived assets by measuring the carrying amount of the assets against the estimated undiscounted future cash flows associated with such assets. At the time such evaluations indicate the future undiscounted cash flows of certain long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to their fair values. As of December 31, 2009 and 2008, management believes the carrying amounts of the remainder of long-lived assets have not been impaired under SFAS No. 144.

15

New Footnote

Long-lived assetsThe Company evaluates its long-lived assets for impairment as events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. In such circumstances, the Companyevaluates the recoverability of long-lived assets by measuring the carrying amount of the assets against the estimated undiscounted future cash flows associated with such assets. At the time such evaluations indicate the future undiscounted cash flows of certain long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to their fair values. As of December 31, 2009 and 2008, management believes the carrying amounts of the remainder of long-lived assets have not been impaired.

16

Disclosure Summary

Many more examples could be provided, but the main goal is to:

• Ensure the proper references are used depending on period of reporting.– Before Sept. 15, 2009– After Sept. 15, 2009

• When possible, use plain English to help the reader understand the financial statements

17

Representation Letters

In the past, we preparers may have represented

There are no:• Violations or possible violations of laws or regulations whose

effect should be considered for disclosure in the financial statements or as a basis for recording a loss contingency

• Unasserted claims or assessments that our lawyer has advised us are probable of assertion and must be disclosed in accordance with Statement of Financial Accounting Standards No. 5

• Other liabilities or gain or loss contingencies that are required to be accrued or disclosed by Statement of Financial Accounting Standards No. 5

18

Representation Letters (Cont.)

Going forward, we preparers should represent

There are no:• Violations or possible violations of laws or regulations whose

effect should be considered for disclosure in the financial statements or as a basis for recording a loss contingency

• Unasserted claims or assessments that our lawyer has advised us are probable of assertion and must be disclosed in accordance with FASB ASC 450 (formerly Statement of Financial Accounting Standards No. 5)

• Other liabilities or gain or loss contingencies that are required to be accrued or disclosed by FASB ASC 450 (formerly Statement of Financial Accounting Standards No. 5

19

Representation Letters (Cont.)

Why should we make reference to the previous standard as follows in certain circumstances?

• Unasserted claims or assessments that our lawyer has advised us are probable of assertion and must be disclosed in accordance with FASB ASC 450 (formerly Statement of Financial Accounting Standards No. 5)

Until everyone is familiar with the new references, we want to ensure that there is no misunderstanding when making reference to a specific standard. So, in some cases, it may be prudent to refer to both old and new

Possible plain English wording, but would suggest reference to standard

Unasserted claims or assessments that our lawyer has advised us areprobable of assertion and the amount of loss can be reasonably estimated based on historical claim activity and loss development factors, which must be disclosed

20

Legal Confirmations

• Remember, attorneys are familiar with Statement of Financial Accounting Standards No. 5 when considering unasserted claims orassessments and may not be familiar with reference to FASB ASC 450. So, consider the need to include dual reference when preparing legal confirmations

This will

• Aid in ensuring proper understanding and response to legal confirmations

21

Work Paper Considerations Remember:• The FASB Accounting Standards Codification TM is the single source of

non-governmental authoritative U.S. GAAP for interim and annual periods ending after Sept. 15, 2009. At that same time, all previous level a-d U.S. GAAP standards issued by a standard setter are superseded

– Therefore, care should be given if reference is made to the pre-codification standards, as these standards may have been superseded

– When documenting research we should be using the Codification source material or source libraries, which are updated for changes in Codification standards timely

– Consider updating historical audit documentation carried forward from prior years, such as audit schedules and memos, to reflect FASB ASC

New FASB Accounting Standards Codification: Are You Ready? Webinar

Oct. 14, 2009

Special Concerns For Attorneys; Codification’s Impact Beyond

Financial Statements

Gordon S. Weber, Faegre & Benson LLP

gweber@faegre.com

2

SEC Reports Historically Have IncludedReferences To Accounting Standards

• Annual reports on Form 10-K

• Quarterly reports on Form 10-Q

• Proxy statements

• Current reports on Form 8-K

3

Accounting Standards References In Reports On Form 10-K And Form 10-Q

• MD&A – Recent accounting pronouncements

• MD&A – Critical accounting policies and estimates

• MD&A – Results of operations; liquidity and capital Resources

• Risk factors

• Quantitative and qualitative disclosures about market risk

4

Accounting Standards References InOther SEC Filings

• Proxy statements – Compensation discussion and analysis

• Form 8-K; Item 2.03 – Creation of a direct financial obligation or an obligation under an off-balance sheet arrangement of a registrant

• Form 8-K; Item 2.06 – Material impairments

• Form 8-K; Item 4.02 – Non-reliance on previously issued financial statements, a related audit report or completed interim review

5

General Approach To Revising Legacy GAAP References In SEC Filings

• Approach legacy GAAP references in SEC filings similar to legacy GAAP references in financial statement footnotes

• For footnotes, in its FASB Accounting Standards Codification Notice to Constituents (v 3.0), the FASB encourages the use of plain English to describe broad Topic references

6

Example Revisions To A Legacy GAAP Reference

Before: Compensation expense included $X.X million non-cash stock-based compensation recognized in accordance with SFAS No. 123(R)

After: Compensation expense included $X.X million non-cash stock-based compensation recognized in accordance with the Stock Compensation Topic of the FASB Accounting Standards Codification

7

Practical Considerations

• Some legacy standards may align with multiple Codification Topics (e.g., SFAS No. 109 – Accounting for Income Taxes cross references to 12 different Codification Topics)

• Some legacy accounting standards have been “grandfathered.” Three other standards, which are not yet effective, are not currently incorporated into the Codification

• References to rules and interpretive releases of the SEC, such as staff accounting bulletins, remain valid

8

Technical Issue:Continuing Applicability Of SEC Rules

SFAS No. 168 reiterates that, in addition to the Codification, rules and interpretive releases of the SEC under federal securities laws continue to be sources of authoritative GAAP for public reporting companies

9

Citations In SEC Rules To Legacy GAAP References

Many SEC disclosure requirements cite specific legacy accounting standards

For example, in describing the disclosure requirements for a table of contractual obligations, Item 303(a)(5) of Regulation S-K defines “Long-Term Debt Obligation” with a reference to SFAS No. 47 and defines “Capital Lease Obligation” with a reference to SFAS No. 13

10

Status Of Legacy Standards Cited In SEC Rules

• Issue: Does the citation to a legacy accounting standard in an SEC rule mean that the legacy standard remains GAAP for public reporting companies?

• Answer: No; on Aug. 18, 2009, the SEC issued Release No. 34-60519, which provides that “references in the Commission’s rules and staff guidance to specific standards under U.S. GAAP should be understood to mean the corresponding reference in the FASB Codification.”

11

Legal Confirmations

• Standard forms of audit request letters and attorney responses include a reference to SFAS No. 5 – Accounting for Contingencies

• The ABA Business Law Section, Audit Response Sub-Committee is evaluating the issue and will probably propose that the reference be revised to Codification Subtopic 450-20 (Loss Contingencies)

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The Codification And XBRL

• In XBRL, financial statement elements are tagged with a code based on an XBRL taxonomy

• SEC reporting companies with over $5 billion in market capitalization are required to file an XBRL exhibit to their financial statements for quarters ending after June 15, 2009

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The Codification And XBRL (Cont.)

Issue: The official U.S. GAAP Taxonomy for 2009 issued by XBRL U.S. referred only to legacy accounting standards, not to the Codification

Solution: XBRL U.S. issued a second, unofficial, U.S. GAAP taxonomy for 2009 that includes references to the Codification. More importantly, the GAAP citations are not part of XBRL tags. They are only a reference to assist in determining the proper XBRL tag