EITF meeting today - not much time to write, but a couple of things for you to consider that you might not have noticed.

First, an excellent description of the above-named securities in a speech by Erik Sirri , the SEC's director of the Division of Trading and Markets. Erik explains the "concentration-despite-diversification" present in these creations, how they dissolved, and makes a couple of not so bold predictions, which are probably dead right. Like this one:

"I'm enough of a historian to know that, some number of years down the road, we or our successors likely will again be commenting on why some other product or business led to large and unexpected losses. But it will probably not be super senior ABS CDO."

Anyway, it's a good read, with more technical description of what goes on in making these things - and their markets - than you'll read in the mainstream financial press.

And there's also a very British view of the way these things work, courtesy of YouTube.

Yes, we've already had Black Friday, and today is Cyber Monday. No doubt you'll be on the receiving end of gift cards purchased sometime in the holiday shopping season, and you'll probably give a few of them, too.

There's an accounting angle to those gift cards: they're not sales for the retailers or restaurants that issue them until they're redeemed. Until the ultimate customer purchases something with them, they're just deferred revenues sitting on the right-hand side of the balance sheet. And if they never get redeemed by the giftees, they simply sit there: a lump of liability, coal in the stocking of the balance sheet.

That non-redemption can be very common. (How many of those cards do you have sitting in a desk drawer from last Christmas?)

The liabilities can be removed via journal entry, courtesy of the concept of "breakage" - meaning that the liabilities get de-recognized when management determines that a portion of the gift cards will never be cashed in. The SEC weighed in on this a few years ago when it issued SAB 101 , which ultimately became SAB 104 . Bottom line: it's not improper to de-recognize, as long as it's supportable. And from the investor point of view, the timing of any de-recognition would be noteworthy: any clean-up of the liabilities in a weak quarter might be suspicious, perhaps motivated by a desire to meet estimates.

There's no particularly noteworthy case of a company using gift card breakage to manage earnings. Maybe it's been done, but the disclosures might not be sufficient to leave a bread crumb trail. CFO.com has a good story on the concerns surrounding gift card accounting, and the Journal of Accountancy has an interesting article and study on their prevalence by Charles Owen Kile Jr., an accounting professor at Middle Tennessee State University.

Apparently gift cards aren't the only thing that recipients forget about. Here's a link to a story about something probably more valuable that people forget about as well: income tax refunds. That one is more amazing: if you bothered to send in a tax return, wouldn't you be looking forward to getting some cash back? Apparently not: the IRS says there's $110 million in unclaimed refunds outstanding.

Yesterday, the FASB voted to propose a deferral of Statement 157 - not the full Monty, but a portion of it.

The part of Statement 157 that applies to financial instruments - the spaghetti hitting the fan these days - will not be deferred. So come next year, investors will still be able to pore over filings, trying to gauge their tolerance of Level 3 valuations of collateralized debt obligations and the like.

The part of Statement 157 that will be deferred for one year - presuming the proposed staff position will be favored by constituents (a process not unlike asking a bear if it likes meat) - is its application to all nonfinancial assets and nonfinancial liabilities, except for those items that are recognized or disclosed at fair value in the financial statements on a recurring basis. Some examples: non-financial assets and non-financial liabilities that are measured at fair value in a business combination; indefinite-lived intangible assets; asset groups in impairment tests; and asset retirement obligations initially measured at fair value.

No deferral on derivatives – financial and nonfinancial ; servicing assets and liabilities measured at fair value on a recurring basis under Statement 156; loans; and debt. So investors can relax a little bit - the scary stuff of the moment will still be uncovered by Statement 157. (Hopefully.)

One has to wonder what the deferral really accomplishes: the items on which 157's applicability is deferred are mainly the things of acquisitions and impairments. The (eternally) forthcoming standard on business combinations, Statement 141R, is expected to address these issues, and sounds as if it won't be effective until 2009 - just like this deferral.

Is this just your regular double-strength, double-secret deferral? Or is the arrival date of 141R even later once again? Or is it good public relations so that the FASB appears to be receptive to the requests of preparers who have coughed up concerns about Statement 157 late in the game? Maybe all three. Insufficient data to evaluate, for now.

One note: in the FASB's handout materials for the meeting, they mention that "Preparers that advocate a deferral note that the early adopters had been following the deliberations of the Statement more thoroughly and extensively than those that did not early adopt. They also observe that the early adopters are primarily large financial institutions that have significantly more experience and dedicated resources in valuing financial instruments (as well as nonfinancial instruments).

Not so fast. In connection with an upcoming piece on fair value reporting, we've tracked down 88 publicly-traded firms that adopted Statement 157. They were definitely not "primarily large financial institutions that have significantly more experience and dedicated resources in valuing financial instruments." (Although they were mostly financial institutions.) Of the 88 firms, 56 of them - over 60% - had a market capitalization of less than a billion dollars. The median market cap: under $300 million. Check the chart at left: of the ones we found, the vast majority were in the lowest market-cap decile. (Deciles measured in billions.) So let's not assume that all of the 157 early adopters are the now-stumbling financial giants; there were quite a few tiny community banks in the group. 

 Statement 157 is often blamed for asset writedowns in the colossal financials, amid whining about "Level 3" valuations - as if they're something new. Statement 157 didn't cause 

That ol' "Singin' Sage of Wall Street" is at it again.

Last summer I introduced you to Merle Hazard, that extraordinary country singer whom you won't remember, but you've heard before. Shoot, you've heard songs about losin', takin' that lonesome train to a jail in a far-off county, with his wife slippin' around while he was in the pokey, and then becomin' a hedge fund manager when he got out. Yeah, you've heard those songs. They were all Merle, in case you didn't catch the name.

Merle's back! He's got a new video that's absolutely surreal. It's been years since I saw Arthur Laffer in a country music video, and he's as witty as ever in this one. And I haven't heard a good re-mix of a Mac Davis song, since... well, since the last time I saw Arthur Laffer in a country music video. Click here to watch Merle's latest.

And click here to see Merle's very own brand new website. Learn about the man behind the music! Score Merle merchandise! Uh, wait a minute - that part of the website's not ready yet...

Thanks to buddy Jon Shayne for letting me know Merle's back! Y'know, I still say they look a lot alike...

The move to international accounting standards will pick up more steam this week. As mentioned last week, the SEC will vote on Thursday as to whether foreign registrants will be permitted to ditch the IFRS-to-GAAP reconciliation in their SEC filings. The guess here is that they'll go for for it: gone for good, effective with 2007 filings.

As I said in my comment letter , convergence is not a bad idea at all. It's just a question of execution. There are many, many differences to be worked out, and not just in the standards. There are differences in the way the standards are developed, the independence of the standard setters, and the auditing and enforcement mechanisms. Getting to convergence is a monolithic task, and the reconciliation has been a good lever for keeping pressure on the standard setters on both sides of the Atlantic.

On Thursday, I believe the lever will be shattered. From there, it gets worse: on to the SEC's Concept Release proposal for US firms to be allowed to have a choice of reporting in IFRS or US GAAP. The FASB's Investors Technical Advisory Committee drafted a letter that pretty much captures my concerns about the idea. (I didn't write a separate one.)

The Financial Accounting Foundation and the FASB jointly responded to the concept release, and they pretty much threw their weight behind the SEC's proposal. The sharpest point they made related to the dropping of the reconciliation; they recognize that this is the only push needed to get the IFRS snowball rolling down the hill:

"... The removal of the requirement that foreign private issuers reconcile their reported results to U.S. GAAP is a difficult and sensitive issue that could have important implications for the continued development of a truly international financial reporting system. We suggest the timing of any removal of this requirement should coincide with the following:

• Development of and commitment to the blueprint by key parties in the U.S.; and

• Commitment by key international parties to undertake the steps necessary to strengthen and sustain the IASB as the independent body responsible for establishing high-quality international standards.

We strongly agree with the SEC that the reconciliation requirement would be removed only for companies applying IFRS as adopted by the IASB.

Good point, but one made too gently. Development of that blueprint can't be done overnight; it's an enormous task in itself, with plenty of buy-in needed from all parties and plenty of political elbow grease. It's doubtful that the SEC will want to wait long to waive the reconciliation.

The FAF/FASB letter outlined the steps needed to make the transition work, and their letter does a great job of making you realize just how big a task it will be - and how much confidence is at stake if it doesn't work. While they call for a detailed blueprint, containing real dates for milestone achievements, the existing standard setters seem vaguely unconcerned about their future involvement.

Indeed, they view their future role this way:

We believe that the blueprint should identify the future role(s) of the FASB after U.S. public companies transition to IFRS. Some of the alternatives are listed here.

• Like other jurisdictions, the U.S. might retain its standard-setting body to develop standards for private companies, not-for-profit entities, or other organizations that use U. ...

Huron Consulting Group, built by ex-Arthur Andersen partners, has studied restatements over the years. They've put together a "best practices" document that's sure to be in demand among companies that might be 'fessing up to past errors. You can download a copy of it here. (Registration required.)

Investors might not be particularly interested in best practices for going through a restatement process: "just the facts, ma'am" is more or less all they care about. Nevertheless, there are some interesting nuggets that Huron has turned up in building their database of restatement information gleaned from 8-K filings over the years.

For instance:

    ♦ The average time between t