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The AAO Weblog covers accounting issues and current events as they relate the practice of investment analysis.

Author: Jack Ciesielski Created: 10/13/2006 2:54 PM
The AAO Weblog is a weblog published by Jack Ciesielski , dealing with accounting issues and news topics related to investment and finance.

Finished writing an Accounting Observer report on the FASB's recent amendments of revenue accounting for "multiple deliverable arrangements," and got to actually spend time really reading the paper and other web content instead of just skimming it. If you've had any interest in the intersection of accounting standards and Congress (the location commonly referred to as "hell," I believe), be sure to read Jon Weil's Bloomberg piece on last year's Congressional  hearing that led FASB to issue watered-down financial instrument impairment rules. A year ago, the Federal Home Loan Bank of Seattle was complaining that mark-to-market accounting was forcing them to report losses that weren't "real" - and a year later, they're suing the underwriters that sold them the securities for nearly $4 billion dollars of refunds on the securities, plus interest.

As Weil puts it: "You know the losses are real when the bank is suing to get its money back."  

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At an open meeting tomorrow morning, the SEC's commissioners "will consider whether to publish a statement regarding its continued support for a single-set of high-quality globally accepted accounting standards and its ongoing consideration of incorporating International Financial Reporting Standards into the financial reporting system for U.S. issuers."

You could take that one of three ways:

    1. They're getting ready to move soon on supporting IFRS in the United States.

    2. They're backing off from supporting IFRS in the United States.

    3. They're putting out a placeholder position to keep one foot in the water without committing either way.

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Plenty of good reasons abound, like digging out the driveway a little more, cleaning up the basement or working on the tax return. You know, stuff that's gotta get done, but a movie would only put off the inevitable task a little longer. And there's another reason: maybe because everybody loves the movie so much, it could only be a letdown if you actually invested the time to see it.

Fortune's Geoff Colvin comes up with a better reason than any other in his January 28 piece:

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Next Wednesday, the New York Society of Security Analysts hosts its annual update on what's new in financial reporting.

Too busy? Let me remind you: Alcoa reported its fourth quarter earnings 2009 yesterday.

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Of course it's not worthy of mainstream media - Tiger Woods' travails rule - but there is weird stuff going on in the world of accounting standard setting, too.

Next week will be the AICPA's SEC/PCAOB Current Developments Conference in Washington DC, where swarms of accountants and auditors go every year to load up on continuing education credits - and to hang on every word of SEC officials speaking there, in case some "knowledge nugget" they glean will pay them a hassle-aversion dividend in the looming reporting season. (I'll be part of the throng as well.)

One thing sure to be on attendee's minds: what is the SEC planning for IFRS usage in the United States? Their question is likely to go unanswered, however. The SEC's chief accountant, has publicly commented that the Commission's "Road Map II" won't be ready until late fall - which he noted could mean as late as December 21, the last day of the season. And weeks away from the last day of the conference, so no real news about Road Map II should be forthcoming in DC next week.

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It's crunch time. This week, the House of Representatives will decide on a bill that will give the new systemic risk regulator the power to override the SEC's judgment in its oversight of the Financial Accounting Standards Boards. It would set up a "council" of interested parties to exercise its judgment over the SEC's.

According to Jessica Holzer of Dow Jones Newswires, the American Bankers Association, the Commercial Mortgage Securities Association, the Council of Federal Home Loan Banks, the Financial Services Roundtable, the National Multi Housing Council, the National Apartment Association, the National Association of Home Builders and the Real Estate Roundtable signed onto a letter to House Financial Services Chairman Barney Frank (D.-Mass.) and Rep. Spencer Bachus (R-Ala.) on Monday.

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There are so many things going on in the standard-setting arena, it makes your head spin. And your stomach as well.

At last September's Pittsburgh meeting, the G-20 "call[ed] on our international accounting bodies to redouble their efforts to achieve a single set of high quality, global accounting standards within the context of their independent standard setting process, and complete their convergence project by June 2011."

Just last week, FASB chairman went the G-20 one better, vowing to "re-triple" the convergence efforts in an interview with a Bureau of National Affairs reporter. The two Boards went on issue a joint statement by the two boards to the same effect.

Then SEC chairman Mary Schapiro issued a statement supportive of the two boards - an indirect affirmation of the convergence process. About a week earlier, chief accountant Jim Kroeker had told attendees at a CPA conference to expect a revised IFRS-in-the-US roadmap later this fall - adding that fall ends on December 21. So the convergence process is humming along, albeit behind the scenes to some degree. Maybe it will all be clearer by December 21. But a couple things still don't add up.

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... is stock compensation. And it's about to become bigger, as "pay czar" Kenneth Feinberg moved yesterday to restrict pay on managers at bailed-out banks and automakers. As Joe Nocera points out in the New York Times, retention bonuses are out; guaranteed bonuses are out. But pay for performance is going to be "in," at least among those beneficiaries of government aid. It probably won't stay isolated to just those corporate wards of the state, either. There's a lot of copycat behavior present in pay practices; they always seem to infect companies faster than the flu infects kids in an elementary school.

Suddenly, it's 1993 all over again. That was when the tax code was revised to punish companies executives making more than $1 million; tax-deductibility of the

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By now it's old news that SEC Chief Accountant Jim Kroeker mentioned that the Commission plans to review its semi-dormant roadmap for converging US accounting standards to international accounting standards. Yesterday, SEC chairman Mary Schapiro reinforced that statement at an IOSCO technical committee conference: she put accounting at the top of her list of three critical regulatory priorities, saying:

The crisis has highlighted importance of implementing and enforcing high quality and consistent accounting standards around the

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September 14 was the deadline for comments on the IASB's exposure draft in its "classification and measurements phase" of its three-part project for replacing its financial instruments standard, IAS 39. That document will receive a lot of attention at the Pittsburgh G-20 summit, I suspect.

I certainly hope not. I was not a fan of the proposal, as you can see in my comment letter. In short, there was nothing in it that even remotely appeared to be advantageous to investors. The proposal preserved the economic fiction of amortized cost accounting for financial instruments, with all its attendant needs for an impairment model and stilted hedge accounting.

In perhaps the most best example of accounting double-speak, the proposed accounting was positioned as a "simplification move" because it eliminated several categories of financial instrument classifications, leaving only two possible classifications: amortized cost and fair value. Yet by preserving the amortized cost category, or at least giving it in prominent classification home, they've simplified nothing. They concocted a stilted method of determining which financial instruments

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