The JOBS Act: Trading IPOs for Blind Spots

by Hiller Hardie 26. April 2012 15:55
The Jumpstart Our Business Startups (JOBS) Act was passed into law on April 5, 2012. It encourages private companies to complete IPO’s by giving them reporting relief if they qualify as an emerging growth company (EGC). EGCs have less than $1 billion in revenue and $700 million in publicly traded stock. A previous blog warned about this legislation eliminating the Sarbanes Oxley requirement of an auditor’s report on a company’s internal control over financial reporting. However, the Act does require management to report on such internal control. Nevertheless, it is now more likely that EGCs will have errors or issues with their financial statements heading into a public offering. This was the case in 2011, when the SEC examined Groupon’s financial statements heading into its November IPO. Groupon had already revised its financials twice before that date because of the SEC’s scrutiny, and is revising them again due to inadequate reserves for customer refunds. This news prompted a sell off and drop in share price from $20 to $15.27. AuditAnalytics.com recently conducted a study of companies with SOX issues since 2004, when the SOX requirement for internal control took effect. They identified 104 companies with SOX issues who would have been exempt from auditor scrutiny if the JOBS Act had been in effect at that time. For more information on the JOBS Act see the April 2012 edition of BDO Knows: The Jumpstart Our Business Startups Act.
Categories: Advisory

Significant Support for Incorporating IFRS into GAAP

by Ken Urish 17. November 2011 13:33
In a letter to the SEC dated November 15, 2011, the Financial Accounting Foundation (FAF) announced that it supports the incorporation of IFRS into U.S. GAAP “as the appropriate path forward for the continued development of high-quality, investor-focused, international financial reporting standards.” FAF is the independent, private-sector organization with responsibility for the oversight, administration, and finances of the Financial Accounting Standards Board (FASB), the Governmental Accounting Standards Board (GASB and their Advisory Councils. FAF expressed its support for an incorporation approach that “advances improvements to U.S. GAAP and furthers the comparability and consistency of high-quality, investor-focused financial reporting standards throughout the globe.” Toward that end, it has recommended a number of modifications to the SEC’s proposed approach to IFRS incorporation. The proposed FAF approach is based on the premise that, over time, international standards will become the foundation of U.S. GAAP. Significantly, FAF believes that its proposed approach complements the SEC’s primary responsibility of facilitating investor protection in the U.S. capital markets, and that it reinforces the SEC’s goal of setting standards that provide necessary financial information to investors in our capital markets.
Categories: Assurance

What’s Next – New Standards for Private Companies

by Laura Lewis 12. July 2011 15:58
Financial Accounting Standards Board (FASB) has identified several factors that indicate major differences in the financial reporting needs of public companies versus private companies or governmental entities. This is an initial assessment that comes from comments over two years from dozens of interested stakeholders gathered by the Board. From these differences, FASB will be able to establish a “differential framework” that will be used in determining if different financial standards will be created to apply to private companies. The framework will be used by the Board to decide when and how to modify specific U.S. GAAP accounting standards for private company use. “This work is an important step forward in the FASB’s effort to develop a set of criteria for evaluating when accounting or disclosure standards should be different for private companies,” said FASB Chairman Leslie F. Seidman. “This process demon­strates our commitment to better serving the needs of without sacrificing the quality and fundamental level of comparabil­ity that are the touchstones of the U.S. accounting system and U.S. capital markets.” The significant differences include: the types of users, access to management, investment strategies, ownership structures, accounting resources and education. What’s next? FASB will continue to solicit input from those using, preparing and auditing financial statements of public companies. In addition, the board will expose a draft of the proposed differential framework for industry feedback.
Categories: Assurance

XBRL – So Far, So Good

by Ken Urish 7. July 2011 09:32
eXtensible Business Reporting Language (XBRL) has been adopted as the new technology standard to web-enable the financial reporting process. XBRL is intended to provide benefits to both the auditing profession and to shareholders and other users of corporate financial data. Instead of treating financial information as a block of text, XBRL employs a computer-readable tag to identify specific items of data. This process enables access to and exchange of corporate financial and business data in an “intelligent” manner, with the goal of enhancing corporate governance by making the information more meaningful and transparent. SEC-reporting companies are in a phase-in period of the interactive data requirements, with the ongoing introduction of detailed tagging of notes to the financial statements and the phase-out of the limited liability provisions.  The Division of Risk, Strategy, and Financial Innovation recently completed a review of XBRL documents submitted during the first two months of 2011 and has published its observations on those filings.  The SEC is encouraging companies to take these observations into account as they prepare future filings. Overall, the SEC believes that filers “continue to devote significant effort to consider their responsibilities under this program, comply with the new rules and provide high-quality submissions.”
Categories: Assurance