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ACCOUNTING
The International Association for Accounting Education and Research and KPMG invited proposals for research that will inform international accounting standards distinguishing liabilities and equity. The partnership’s Defining, Recognizing and Measuring Liabilities Research Program will sponsor up to five research projects with grants of $25,000 each. The Liabilities and Equity Distinctions project is one of several the International Accounting Standards Board is conducting jointly with the Financial Accounting Standards Board. The deadline for proposals is December 15 (www.iaaer.org/?page=Call%20for%20Papers).

BANKING
Federal financial regulatory agencies issued final guidance on risks posed by residential mortgage products that allow borrowers to defer principal and sometimes interest payments. Often referred to as “nontraditional” or “alternative” mortgages, these loans typically allow a borrower to trade lower payments early in the mortgage for higher payments later. Borrowers may not fully understand the risks of the products, which have long been available but in recent years have been offered by more institutions.

The document, Interagency Guidance on Nontraditional Mortgage Product Risks (http://www.federalreserve.gov/boarddocs/press/bcreg/2006/20060929/attachment1.pdf), was issued jointly by five agencies: the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve, the Federal Deposit Insurance Corp., the Office of Thrift Supervision and the National Credit Union Administration. In response to feedback last year, the agencies also issued model loan disclosures for public comment in a related document, Proposed Illustrations of Consumer Information for Nontraditional Mortgage Products (www.federalreserve.gov/boarddocs/press/bcreg/2006/20060929/attachment2.pdf).

FINANCIAL REPORTING
A new Financial Accounting Standards Board rule requires employers to fully recognize pension and other postretirement plan obligations on their financial statements. FASB Statement no. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, requires employers that are business entities to recognize on their balance sheets an asset for a plan’s overfunded status or a liability for a plan’s underfunded status, measure their plans’ assets and obligations at the end of each fiscal year and recognize changes in the funded status of defined benefit retirement plans in the year the changes occur. Public companies must recognize the funded status of benefit plans for fiscal years ending after December 15, 2006; for private companies and nonprofits, the deadline is for fiscal years ending after June 15, 2007. The requirement to measure plan assets and obligations on the date of the employer’s yearend balance sheet is effective for fiscal years ending after December 15, 2008. For more information, visit www.fasb.org/st.

FASB has published two exposure drafts (EDs) in October intended to improve the accounting and disclosures for mergers and acquisitions by not-for-profit organizations.

The first exposure draft, Not-for-Profit Organizations: Mergers and Acquisitions, would eliminate the use of the pooling-of-interests method of accounting for all mergers and acquisitions by not-for-profits, and require the application of the acquisition method. The second, Not-for-Profit Organizations: Goodwill and Other Intangible Assets Acquired in a Merger or Acquisition, would require such entities to provide consistent and comparable information about identifiable intangible assets they acquire in a merger or acquisition. They also must provide more relevant information about events that result in impairment of goodwill acquired by the not-for-profit organization. The proposed guidance is consistent with the accounting for all other acquired intangible assets—whether purchased or donated and whether acquired individually or as part of a group. The comment deadline for the proposals, which can be downloaded at www.fasb.org/draft/major_standards_projects_ed.shtml, is January 29.

According to the FASB news release announcing the proposals, recent estimates suggest the total asset base of the U.S. not-for-profit sector would make it the sixth largest economy in the world. Similar studies suggest such organizations’ financial results in 2003 represented approximately 9% of the U.S. gross domestic product.

GOVERNMENT ACCOUNTING
The Governmental Accounting Standards Board (GASB) issued Statement no. 48, Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and Future Revenues (http://gasbpubs.stores.yahoo.net/gs48.html; also see Official Releases, page 97). The statement establishes criteria for governments to determine whether the proceeds from certain transactions—such as the sale of delinquent taxes, some mortgages, future revenues and student loans—should be reported as revenue from a sale or as collateralized borrowing resulting in a liability. It also stipulates that governments should not revalue assets when they are transferred between components of a financial reporting entity.

Statement no. 48 also requires enhanced disclosures about future revenues that have been pledged or sold, which would allow the public to be better informed about their fiscal availability, said GASB Chairman Robert H. Attmore. In addition, it supersedes guidance provided in GASB Technical Bulletin 2004-1 concerning sales of future revenue from tobacco lawsuit settlements. The new requirements become effective for financial statement periods beginning after December 15, 2006.

The Federal Accounting Standards Advisory Board (FASAB) issued a technical bulletin to clarify reporting requirements relating to liabilities for cleanup costs of asbestos-contaminated sites. Technical Bulletin 2006-1, Recognition and Measurement of Asbestos-Related Cleanup Costs, clarifies that federal entities must estimate all asbestos-related cleanup costs, not just those for immediate cleanup. The bulletin is available on the FASAB Web site at www.fasab.gov/tchbl.html.

The GAO (www.gao.gov) said it had continuing concerns about the number of restatements to federal agencies’ financial statements and the insufficient disclosures about the reasons for the restatements. In a report issued in October, “Financial Audit: Restated Financial Statements,” the GAO said nine agencies of the 11 that restated financial statements for fiscal year 2003 did so without adequate explanation. Among the shortcomings it listed were restatements that were not labeled as such and footnote disclosures that were unclear or lacked sufficient detail about the nature of the restatements as well as their effect on balances previously reported.

More complete guidance from the Office of Management and Budget on restatement disclosure could have prevented some of the lapses, the GAO said, and it called on the OMB to provide additional guidance.

The FASAB (www.fasab.gov) issued a statement amending requirements for disclosures in the consolidated financial report (CFR) of the U.S. government. FASAB Statement no. 32 (see Official Releases, page 97) is intended to align earlier CFR standards with the 2003 Statement of Federal Financial Accounting Concepts no. 4, which directed the CFR to tell users where to find information in other formats, including reports by individual government agencies. The new amendments cover disclosure requirements concerning assets such as inventories and direct loans, as well as liabilities such as loan guarantees and those relating to whole life insurance and cleanup costs.

INTERNATIONAL
The International Federation of Accountants (IFAC) launched an Internet portal for accountants employed in business and industry. The site (www.ifacnet.com) provides one-stop access to previously hard-to-find articles, guidance and tools. Thirteen accounting organizations, including the AICPA, together with IFAC, have agreed to share their electronic resources through IFACnet. Although there is no fee to use the site, some searches may identify documents or publications available for purchase.

INVESTMENT
The SEC adopted amendments to give regulatory relief to mutual funds in enforcing prohibitions against short-term trading. In October the SEC issued final amendments to a rule requiring funds to negotiate agreements with all broker-dealers or other intermediaries holding shares on behalf of other investors in an “omnibus account.” The agreements require the intermediaries, among other things, to enforce trading restrictions upon individual shareholders.

After the original rule was adopted in 2005 many fund managers told the SEC that identifying all such intermediaries among their shareholders was costly and burdensome. It also was unnecessary, they said, since short-term trading by individual shareholders would be reflected in that of the intermediary. In response the SEC has revised its definition of a financial intermediary to exclude any entity the fund treats as an individual investor. The changes take effect December 4.

MONEY LAUNDERING
The Financial Crimes Enforcement Network (FinCEN) issued guidance designed to assist mutual funds in complying with the suspicious transaction reporting requirement adopted in May. Under that rule mutual funds must file reports with FinCEN that identify and describe any transactions that might raise suspicions of illegal activity.

“The suspicious activity reporting rules are not intended to operate in a mechanical fashion,” FinCEN said in a release announcing the new guidance, which is a series of frequently asked questions. The various issues addressed in the FAQs help explain the principles underlying the reporting requirement, allowing mutual funds to apply the law to the “multitude of transaction scenarios that mutual funds encounter in the daily course of business,” FinCEN said.

The FAQs are available at www.fincen.gov/guidance_faqs_sar_10042006.pdf. Institutions also may call the FinCEN regulatory helpline at 800-949-2732 for additional advice.

PRACTICE MANAGEMENT
Illinois temporarily suspended a provision of a law that would have required CPAs licensed in other states to register in Illinois even to do something as simple as complete an Illinois state tax return for a client, regardless of whether the CPA or client ever entered the state.

In a September 28 letter to Illinois Gov. Rod R. Blagojevich, then-AICPA board chair Leslie Murphy and President and CEO Barry Melancon said: “The AICPA recognizes and supports the intent of the [Illinois Public Accountancy Act] and subsequent regulations which were to enhance consumer protection, while at the same time allow for greater mobility for out-of-state CPAs who provide professional services in Illinois.” They questioned the approach the Illinois Department of Financial and Professional Regulation (IDFPR) had taken in implementing the law, which became effective October 1.

“At a time when states across the country are working to eliminate barriers for CPAs by embracing the concept of substantial equivalency, Illinois’ approach is putting new and additional obstacles in place,” the two AICPA leaders said.

On September 29 the IDFPR adopted an emergency rule exempting CPAs licensed in another state from registering in Illinois “so long as the individual CPA is temporarily practicing in [Illinois] incidental to practice in another state and does not solicit Illinois clients nor have a physical presence in Illinois.”

The emergency rule will be in effect until a permanent rule is adopted after a rule-making and comment period that is expected to take place before the end of the year.

FYI
The Financial Accounting Foundation announced the appointment of Carol A. Kraus, CPA, to represent the National Association of State Budget Officers on the Governmental Accounting Standards Advisory Council. GASAC serves as an advisory group to GASB, the body responsible for establishing and improving financial accounting and reporting standards for state and local governments. Kraus is an associate director in the Illinois governor’s Office of Management and Budget.