SEC Chief Accountant Kroeker, Key Player in Fair Value Negotiations, Steps Down

July 2, 2012 by · Leave a Comment
Filed under: Fair Value Accounting, SEC 

The United States Securities and Exchange Commission (SEC) announced that James Kroeker, the governing body’s chief accountant since 2009, is stepping down.

“Jim has provided superb counsel on a range of accounting- and auditing-related matters and has always stressed the importance of accounting to our investor protection mission,” said SEC Chairwoman Mary L. Schapiro.

Kroeker served as staff director of the SEC’s study of fair value accounting standards, which Congress mandated in 2008. He has led efforts to analyze the adoption of International Financial Reporting Standards (IFRS), one step that could lead to the establishment of a global accounting standard.

Kroeker’s departure is also significant because of the timing. The SEC is currently debating and completing the full analysis of bringing IFRS to U.S. public company accounting standards. Business and governmental leaders are anticipating the SEC’s analysis and decision as it would require a large shift in standards, most notably fair value accounting.

Jim is one of the good ones. He will be missed. The SEC has not announced a timetable for his replacement.

The Economist: U.S. Adoption of IFRS “Seems Off the Table”

A Schumpeter blog at The Economist online recently discussed the convergence process between the United States-based Financial Accounting Standards Board (FASB) and the International Accounting Standards Board after a recent conference at Baruch College in New York. Top brass from the FASB and the Securities and Exchange Commission (SEC) were on hand to discuss the convergence process and potential adoption of International Financial Reporting Standards (IFRS) by the United States. The SEC is currently reviewing whether or not to adopt IFRS, with a decision expected fairly soon.

But The Economist’s bloggers remain pessimistic of such an adoption or merger. “A wholesale adoption of the international standards now seems off the table,” it reads. The FASB seems likely to remain in power, utilizing an “endorsement” of international standards instead.

“American critics of IASB make several points, many to do with fair-value or ‘mark-to-market’ accounting of financial instruments,” the editorial notes. The difference between the two schools of thought has narrowed, though a gap remains. The IASB still prefers that assets be booked at historical cost; the FASB has softened and is now considering a “three-bucket” approach which would book some assets, depending on their characteristics, at either market value or historical cost.

IASB Publishes Proposed Due-Process Enhancements

The International Accounting Standards Board (IASB) has published proposed due-process enhancements, seeking to clarify some of the steps the board takes when making ruling decisions. The proposed revisions explain in further detail how the board will assess the potential impact of a new rule, lays out a method of post-implementation reviews, and details how the board will conduct outreach activities.

Facing political backlash from global economic leaders as well as the United States Securities and Exchange Commission, the IASB is seeking to diffuse any tensions that may still be present in heated discussions on the integration of United States-based Generally Accepted Accounting Principles (GAAP) with International Financial Reporting Standards (IFRS).

Political tension, stemming from the global financial crisis and both boards’ decisions to make sudden sweeping changes to mark-to-market accounting regulations, has been a driving force to make the standards-setting process more transparent. Agreeing on mark-to-market accounting standards has been a major impediment in merging global and domestic reporting standards.

This move comes on the heels of a similar move by the Financial Accounting Standards Board’s overseer last year. The domestic due-process enhancement is now on its second performance review.

Mark-to-Market for Pension Plans Draws Closer Look from SEC

May 11, 2012 by · Leave a Comment
Filed under: General, SEC 

Companies that have recently switched to the mark-to-market method of pension accounting have caught the attention of the United States Securities and Exchange Commission (SEC).

The SEC has raised concerns that these companies may be using disclosures that are not consistent with U.S. Generally Accepted Accounting Principles (GAAP) and may be confusing to investors.

Major American companies like AT&T, Honeywell, and Verizon have led the change to mark-to-market, allowing them to recognize gains and losses immediately as opposed to “smoothing” gains and losses over a period of years, called cost amortization. This change allowed companies like these to retroactively apply losses of 2008 and 2009 to previously reported balance sheets.

“A number of companies that have done that [moved to mark-to-market pension accounting] have then gone on to select a non-GAAP method of disclosure for pensions, that then takes out the actual return on plan assets and adds back the expected return on plan assets,” SEC Chief Accountant Jim Kroeker said recently.

“Unfortunately in doing that, they haven’t then included the amortization of prior deferred losses.” The issue for investors, says Kroeker, is that these non-GAAP disclosures may seem to represent actual pension gains and losses rather than expected asset returns. Mark-to-market itself may not be entirely misleading, said Kroeker, but that it might be “useful to an investor” if companies disclosed more plainly whether numbers are actual performance or expected performance.

Tweedie, Herz, and Cherry Speak on U.S. Adoption of IFRS

In a panel discussion of three former accounting standards setters – Sir David Tweedie, the former chairman of the International Accounting Standards Board (IASB), Bob Herz, the former chairman of the Financial Accounting Standards Advisory Board (FASB), and Paul Cherry, the former chairman of the Canadian Accounting Standards Board (AcSB) – spoke about the potential for the United States to adopt International Financial Reporting Standards (IFRS) and the political pressures facing standards setters today.

The US Securities and Exchange Commission (SEC) is still debating and has not yet sent down a decision on whether or not to adopt IFRS. Tweedie noted how important the U.S. is to international synchronization of accounting standards, noting that other major economies such as Japan, China, and India are hinging their decisions on IFRS adoption on the United States’ decision. “The world is waiting,” said Tweedie.

Herz spoke at length regarding the role of politics in standards setting, bringing up the proposed amendment to the Dodd-Frank act that would have required fair value accounting much more broadly in U.S. reporting standards.

Pressure from Congress is often pointed to as the main reason for the removal of fair value in 2009. “Some people would take the view that politicians should just stay out of standard setting and leave it completely to the independent standard setters and the like,” said Herz, “but it’s not the real world. People have the right to go to their elected officials and complain about things if they don’t like what’s happening.”

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