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It's Here: The SEC's Backdating Guidance
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Posted by: Jack Ciesielski 9/20/2006 6:52 AM
Just released yesterday: a letter from new Chief Accountant Conrad Hewitt (his first public missive) to representatives of the financial preparer and auditor communities.

The letter summarizes relevant issues for preparers and auditors to consider in evaluating whether or not an option "mis-pricing" event has occurred. It's just in time before the 2006 audit season gets going; given the attention raised by the press on the issue, and the impetus provided by the PCAOB, auditors will be spending more time than usual on "old-time" options this year. Why does it matter, if the options grants pre-date the financial statements being reported upon? Because it's possible that if the correct accounting treatment had been used, the effects could still have a lingering compensation effect on current year financial statements. Or, perhaps there could have been a material effect on the financial statements of several years ago which are still presented in the comparative package.

The Hewitt letter draws on the observations made by the SEC staff in its investigations to date. Will it launch hundreds of restatements or catch-up adjustments? That's going to depend on how well auditors match up circumstances they find with the "fact patterns" presented in the letter. We'll have to see what they find in the first place, but it should be an interesting fourth quarter. Even if no widespread problems are uncovered.
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