• The scope of definition of a business and a business combination are expanded.
• All business combinations (full, partial, or step acquisitions) will result in all assets and liabilities of the acquired business being recorded at their fair values, with few exceptions.
• Earn-outs and other forms of contingent consideration shall be recorded at fair value on the acquisition date.
• Certain acquired contingencies will be recorded at fair value at the acquisition date.  In subsequent periods, those contingent liabilities will be measured at the higher of their acquisition date fair value or the amount determined under the existing guidance for non-acquired contingencies. Contingent assets will be measured at the lower of their acquisition date fair value or the estimated amounts to be realized.
• Acquisition costs will generally be expenses as incurred.
• Restructuring costs generally will be expenses in periods after the acquisition date.

Summary of key provisions of FAS 160:

• In-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date.
• Fair value of the purchase price, including the issuance of equity securities, will be determined on the acquisition date.
• Changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period will impact income tax expense.
• Noncontrolling interest (NCI) will be recognized in the equity section, and losses in excess of the NCI's equity interest will continue to be allocated to NCI.
• Purchases or sales of equity interests that do not result in a change in control will be accounted for as equity transactions.  Upon a loss of control, the interest sold, as well as any interest retained, will be measured at fair value, with any gain or loss recognized in earnings.

Resources:

Commentary on FAS 141R and 160. Compliance Week Article. January 2008. article

"What you need to know about the new accounting standards affecting M&A deals" by PricewaterhouseCoopers. This paper includes a good before and after comparison of 141 to 141R. whitepaper

Enterprise Risk Management (ERM)
Topic summary: The COSO* "Enterprise Risk Management-Integrated Framework" published in 2004 defines ERM as a "…process, effected by an entity's board of directors, management, and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives."  ERM has begun to receive more focus lately by Boards and regulators because of the changing environment over the past decade, including the Enron and Worldcom scandals in the early 2000s, which led to the development of the Sarbanes-Oxley (SOX) Act and the recent banking financial crisis of the late 2000s and recession of 2008/2009. 

Regulatory and financial analyst actions are now focusing more on how company's manage risk as follows:

• Section 404 of SOX required public companies to assess their internal controls using an acceptable control framework.  Most companies chose the COSO Internal Control Framework, which includes as one of its components: Risk Assessment.
• The New York Stock Exchange requires the Audit Committees of its listed companies to "discuss policies with respect to risk assessment and risk management."
• Standard & Poors (S&P), the credit rating and equity research company announced its plans to include a series of questions about risk management in its company evaluation process. This started with financial companies in 2007. The results of this inquiry is one of the many factors considered in debt rating, which has a corresponding impact on the interest rates lenders charge companies for loans or bonds.  On May 7, 2008, S&P also announced that it would begin including an ERM assessment in its ratings for non-financial companies starting in 2009.
• The SEC proposed a rule on July 10, which was finalized December 16, 2009 as rule 33-9089 that requires Boards to disclose their role in the company’s risk management process in proxy and information statements, annual reports and registration statements. 
• COSO released a new thought paper, Effective Enterprise Risk Oversight: The Role of the Board of Directors. August 2009.
• The AICPA Audit Committee Effectiveness Center published an article on the effectiveness of Enterprise Risk Management. September 2009.

The COSO ERM Framework has eight Components and four objectives categories. It is an expansion of the COSO Internal Control-Integrated Framework published in 1992 and amended in 1994. The eight components are:

• Internal Environment
• Objective Setting
• Event Identification
• Risk Assessment
• Risk Response
• Control Activities
• Information and Communication
• Monitoring

The four objectives categories are:

• Strategy - high-level goals, aligned with and supporting the organization's mission
• Operations - effective and efficient use of resources
• Reporting - reliability of operational and financial reporting
• Compliance - compliance with applicable laws and regulations

Resources:

SEC final rule on Proxy Dislcosure 33-9089. December 16, 2009. Rule requires Boards to disclose their role in the company’s risk oversight, as well as other compensation and governance disclosures, in proxy and information statements, annual reports and registration statements. press release, final rule

The AICPA Audit Committee Effectiveness Center published an article on the effectiveness of Enterprise Risk Management. September 2009. article

"ERM: Opportunities for Improvement", Journal of Accountancy, September 2009. Provides findings of a survey of 700 organizations on current state of enterprise risk oversight and barriers to implementation of ERM. article

COSO released a new thought paper, Effective Enterprise Risk Oversight: The Role of the Board of Directors. August 2009. whitepaper

Standard and Poor's Progress Report: Integrating Enterprise Risk Management Analysis into Corporate Credit Ratings, July 22, 2009, This includes a listing of questions S&P asks in the evaluation process report 

SEC proposed rule on Proxy Disclosure 33-9052. July 10, 2009.  Rule would require Boards to disclose their role in the company’s risk management process in proxy and information statements, annual reports and registration statements.  proposed rule

COSO Enterprise Risk Management Integrated Framework - Executive Summary, September 2004. article

COSO Enterprise Risk Management Integrated Framework - 2004. The full framework is available for purchase through the AICPA: framework

* The Committee of Sponsoring Organizations of the Treadway Commission (COSO) is an independent body dedicated to guiding executive management and governance entities toward the establishment of more effective, efficient, and ethical business operations on a global basis. It sponsors and disseminates frameworks and guidance based on in-depth research, analysis, and best practices.


Fair value accounting (SFAS 157 and 159)
Topic summary: Fair value accounting has received lots of press in the past year due to the release of SFAS 157 and 159 and also since more recent standards (especially those in convergence of FASB and IASB standards) are making more use of fair value.  It's primary benefit is applauded by analysts as providing more transparency to the real value of assets and liabilities.  Fair value is used in the ongoing measurement (mark-to-market accounting) of derivatives (with certain exceptions for hedges), trading securities, and available-for-sale securities.  It is also used to recognize impairments of financial assets.  SFAS 157 establishes a framework for developing fair value estimates.  It also establishes a hierarchy of inputs in determining a fair value estimate.  With the release of SFAS 159, a reporting entity can (with certain exceptions) elect to use fair value on an ongoing basis for financial assets and liabilities that are not reported at fair value.  Further use of fair value is required in SFAS 141R for M&A deals (see Business Combinations).  The article below entitled "Some Facts about Fair Value", written by FASB is an excellent primer on fair value.

Resources:

PCAOB Issues Staff Audit Practice Alert on Auditor Considerations Regarding Fair Value Measurements, Disclosures, and Other-Than-Temporary Impairments, April 21, 2009, alert

SEC Report to Congress on Mark-to-Market Accounting, December 30, 2008, report

"Some Facts about Fair Value". Article by Chairman of the FASB explaining fair value. May 2008. article


International Financial Reporting Standards (IFRS)
Topic summary:  International Financial Reporting Standards (generally referenced to include International Accounting Standards) are used by a great number of countries as the accounting and reporting standards for financial reporting for local statutory reporting.  Many countries have also set dates to adopt IFRS or some part of them over the next few years. The EU adopted IFRS as the standard in 2005.  Over the past few years, the Financial Accounting Standards Board (FASB), which sets US GAAP accounting standards has been working with the International Accounting Standards Board (IASB) to converge US GAAP with IFRS.  Polls of most publicly traded companies and the position of FASB and the SEC is that the US needs to adopt standards that are more principle-based (such as IFRS) than rules-based (such as the current FAS) and have more comparable financial statements with other countries to promote a global marketplace. The SEC has proposed a roadmap for the potential adoption of IFRS for reporting by US issuers, dependent upon several issues to be resolved.  The SEC has set 2011 as the year when it will make a decision on a timeline for IFRS adoption.  It is widely debated whether convergence or adoption is the best answer for the US.  Comments on the SEC's proposal indicate that convergence is more palatable to US issuers and accounting firms. The AICPA article below gives a good summary of the comments and the pros and cons.

Resources:

An AICPA Analysis of Comment Letters on the SEC's Proposal. April 27, 2009. article

Proposed Roadmap for the Potential Use of Financial Statements Prepared in Accordance with International Financial Reporting Standards by U.S. Issuers (Release No. 33-8982; November 14, 2008) proposed rule; (Release No. 33-9005; February 3, 2009) comments received

Countries which require or permit the use of IFRS:
Australia
Egypt
France
Germany
Hong Kong
Italy
Russia
Spain
Switzerland
United Kingdom
Venezuela

Countries where it is not allowed:
Argentina
China
Colombia
Indonesia
Pakistan
Phillipines
Saudi Arabia
Thailand
United States (SEC proposed adoption for US filers starting in 2014; foreign filers permitted to use IFRS without reconciliation to US GAAP)

Upcoming transition dates*:
Brazil - 2011
Canada - 2011
India - 2011
Israel - 2011
Japan - 2011
Malaysia - 2012
Mexico - 2012, currently allowed
South Korea - 2011
Venezuela - 2008 for large entities, 2010 for small/medium entities

*Since comparative financial statements are required, these adoption dates generally require that a company start capturing data for IFRS reporting in the year prior to adoption.  These dates are for informational purposes and may not be a comprehensive list or may change.  Please check the authoritative standard setter for the country for definitive timelines.


eXtensible Business Reporting Language (XBRL)
Topic summary:  XBRL stands for eXtensible Business Reporting Language.  It is one of a family of "XML" languages which is becoming a standard means of communicating information between businesses and on the internet.  Instead of treating financial information as a block of text - as in a standard internet page or a printed document - it provides an identifying tag for each individual item of data.  This is computer readable. For example, company net profit has its own unique tag.

The introduction of XBRL tags enables automated processing of business information by computer software, cutting out laborious and costly processes of manual re-entry and comparison.  Computers can treat XBRL data "intelligently": they can recognise the information in a XBRL document, select it, analyse it, store it, exchange it with other computers and present it automatically in a variety of ways for users.  XBRL greatly increases the speed of handling of financial data, reduces the chance of error and permits automatic checking of information.

Companies can use XBRL to save costs and streamline their processes for collecting and reporting financial information.  Consumers of financial data, including investors, analysts, financial institutions and regulators, can receive, find, compare and analyse data much more rapidly and efficiently if it is in XBRL format.

On January 30, 2009, the SEC adopted rules that would require companies to provide to the Commission financial statements in XBRL format, as well as posting to corporate websites (if companies maintain websites).  This adoption is phased in over a three year period with large accelerated filers first required to submit in XBRL format starting June 15, 2009, other accelerated filers starting June 15, 2010, and all other filers June 15, 2011. 

Resources:

"SEC Staff Briefing on Interactive Data in the U.S." presented at Compliance Week eConference, October 28, 2009. presentation

Center for Audit Quality: "Potential Audit Firm Service Implications Raised by the SEC Final Rule on XBRL", June 1, 2009. article

XBRL International website

Summary of background, key dates, and benefits of XBRL from the AICPA website. summary

SEC Release 33-9002: Final rule on adopting XBRL format for submitting SEC filings, January 30, 2009. final rule

SEC Proposed timeline for adoption of XBRL for submitting SEC filings, May 14, 2008, summary Release 33-8924; May 30, 2008) proposed rule