FASB DELAYS OFF-BALANCE-SHEET ACCOUNTING RULENorwalk, Conn. — Under pressure from banks and regulators, the Financial Accounting Standards Board has decided to reverse itself and postpone the effective date of an accounting rule that would have forced financial institutions to move assets and liabilities from special-purpose entities such as mortgage-backed securities onto their balance sheets.
The board unanimously decided at a meeting in late July to change the date for when financial institutions would have to account for the special-purpose entities on the balance sheet.
The transition and effective dates for FASB Statement No. 140 and FASB Interpretation No. 46 (revised December 2003) will now be a single effective date for fiscal years beginning after Nov. 15, 2009, a year later than had been scheduled. The rules will thus go into effect for calendar-year companies in 2010 instead of 2009.
Banking regulators had been concerned about the potential impact on Fannie Mae and Freddie Mac, as well as on banks, which would have needed to raise substantial amounts of fresh capital in today’s difficult market. A Citigroup analyst estimated in May that banks in the U.S. could be forced to put up to $5 trillion worth of debt assets on their balance sheets once the rules went into effect.
While FASB agreed to delay the rule, it did so reluctantly. “It does pain me to allow something that has been abused by certain folks, to let that go on for another year,” said FASB Chairman Bob Herz.
GASB PROPOSES BENEFIT CONTRIBUTION STANDARDS
Norwalk, Conn. — The Governmental Accounting Standards Board issued for comment a proposed technical bulletin to help government accountants determine the annual required contribution for post-employment benefits.
The document will clarify that the use of actual known amounts for purposes of calculating the annual required contribution adjustment relating to pensions and other post-employment benefits is consistent with the intent of existing standards.
For accounting purposes, the portion of the ARC calculation related to past over and underpayments already has been recognized in the financial statements, and an adjustment needs to be made to future ARCs to avoid counting that amount twice.
The proposed technical bulletin is available at www.gasb.org/exp. The comment deadline is Sept. 30, 2008.
JAMBA JUICE HIRES KPMG
Jamba Inc., parent to the Jamba Juice chain, dismissed auditor Deloitte & Touche and engaged KPMG as its new independent accountant.
In a filing, the EmeryvillCalif.-based company said that it made the change on the recommendation and approval of its audit committee.
The company said that Deloitte’s audit reports for the fiscal years ended in January 2007 and January 2008 did not contain an adverse opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. There were also no disagreements with the auditor over accounting principles or financial statement disclosures.
INVENTURE DISMISSES DELOITTE
Snack manufacturer and marketer Inventure Group dismissed Big Four firm Deloitte as its auditor and engaged Moss Adams as its new independent accountant.
The company, based in Goodyear, Ariz., said in a filing that there were no disagreements with its former auditor on any accounting matters.
FASB LITIGATION PROPOSALS COME UNDER FIRE
Norwalk, Conn. — Several groups are criticizing a proposal from the Financial Accounting Standards Board on accounting for contingencies, saying that it could lead to possible abuses, including a flurry of spurious lawsuits.
The proposed amendments to FASB Statements 5 and 141(R) would increase the amount of information that publicly traded companies are required to disclose about pending or threatened litigation. The U.S. Chamber of Commerce sent a letter to the Financial Accounting Standards Board outlining its opposition to the proposed rule change, saying it would open the door to “abusive” lawsuits by trial lawyers. The chamber claims the additional requirements would force companies to release immaterial or confidential information and could lead to excessive and harassing lawsuits.
“This proposed rule is nothing but a solution in search of a problem,” said David T. Hirschman, president of the U.S. Chamber Center for Capital Markets Competitiveness. “The changes would invite excessive and abusive lawsuits against public companies and hurt U.S. global competitiveness.”
The American Bar Association also sent a comment letter to FASB describing its own “serious concerns” with the proposed changes.
“The exposure draft, particularly as applied to contingencies arising from pending and threatened legal claims, raises a number of problems and will likely have unintended but seriously adverse consequences for reporting entities,” said the letter. The ABA said that the proposals would require disclosure of even remote contingencies that are likely to soon be resolved, and noted that the proposals go further than international accounting standards, which only require the disclosure of contingencies that are more than remote.
Financial Executives International also registered its objections, saying that two of its committees were “very concerned” about the implications of the proposed rules “on the accounting and disclosures of loss contingencies related to litigation; particularly the prejudicial effects these changes will have on ongoing and threatened litigation.”
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