AFP Blogs

The FASB clarified the type of embedded credit derivative that is exempt from embedded derivative bifurcation requirements with Accounting Standards Update 2010-11.　Only one form of embedded credit derivative qualifies for the exemption and that is one related only to the subordination of one financial instrument to another. As a result, entities that have contracts containing an embedded credit derivative feature in a form other than such subordination may need to separately account for the embedded credit derivative feature. An entity must apply the amended guidance as of the beginning of its first fiscal quarter beginning after June 15, 2010.

Fair Value  — The two Boards are planning to create educational materials for measuring fair value of difficult-to-value assets and liabilities will be developed to address concerns raised by entities in emerging and transition economies about applying such principles in their jurisdictions. The material will include case studies and examples to help constituents not used to applying concepts of the guidance think through problematic issues.

Financial Presentation –The Boards also discussed their proposed guidance on financial statement presentation. The Boards tentatively favor requiring full retrospective application upon adoption. Under the proposed accounting guidance, financial statements will be required to be cohesive, contain disaggregated information, and make a company’s liquidity and financial flexibility more transparent to users. As part of transition requirements, their proposal will include requiring entities to apply the new presentation guidance to previously issued financial statements which would entail for each prior period the following: reclassifications, new groups, and disaggregation of comparative information presented and disclosed as if the new presentation provisions had always been applied.

SEC/IRS Enters MOU on Municipal Securities

The Internal Revenue Service (IRS) and the Securities and Exchange Commission (SEC) entered into a memorandum of understanding (MOU) stating their intention to work cooperatively to identify issues and industry trends within the tax exempt bonds/municipal securities industry and to develop strategies to enhance performance of their respective responsibilities. Tthe IRS and SEC have agreed to inform the other in advance, where feasible and otherwise as soon as practicable, of issues that may affect the interests of the other party as they pertain to tax exempt bonds/municipal securities. Such information may include, but is not limited to, market risks, practices, and events relating to tax exempt bonds/municipal securities that may be of interest to the other agency.

The Financial Accounting Foundation (FAF) and the Financial Accounting Standards Board (FASB) support the SEC’s view that a single set of high-quality globally accepted accounting standards will benefit U.S. investors.  The FAF and FASB support the SEC’s further consideration of the issues identified in the “work plan” in making its determination on whether and how to transition the current financial reporting system for U.S. issuers to a system incorporating International Financial Reporting Standards (IFRS). The FAF and the FASB stand ready to fully assist the SEC as it works toward a decision next year.

According to a recent PwC IFRS survey, nearly 50% of US-based multinational companies are either currently using IFRS somewhere in the world, have completed an initial impact assessment, or are planning to do an assessment.

Has the job market improved for treasury and finance professionals? According to some headhunters, large and even some midsize financial-services institutions have begun hiring, although not at the pace they were a couple of years ago. (more…)

A quick scan of the Internet shows that observers are underwhelmed by the Treasury Department’s credit rating agency proposal.

Mark Webster of  Treasury Alliance Group called the measures “window dressing.” The payments and treasury consultant added, “The attempt to push for less reliance on the agencies is a good thing and a start in this direction, but doesn’t really solve the problem. Even if the regulators don’t mandate reliance on the agencies, the markets will. No, or at least very few, treasurers are going to risk their job by investing in unrated or low rated securities.”

AFP strongly supports reforming the credit rating industry and is preparing comments on the proposal. If you have any comments that you would like included in AFP’s analysis, contact Jeanine Arnett at 301.961.8853 or jarnett@AFPonline.org.

Read the AFP’s most recent credit rating agency testimony here.

Six banks in Illinois and one in Texas were seized by regulators last Thursday, as the deepening financial crisis pushed the toll of failed U.S. lenders this year to 52, the most since 1992.

Twelve banks have failed this year in Illinois, the most of any state. The seven lenders seized, with total assets of $1.49 billion and deposits of $1.34 billion, were closed by state or federal regulators and the Federal Deposit Insurance Corp. was named receiver, according to statements from the FDIC.

The failures resulted primarily because of soured loans and losses on investments in collateralized debt obligations, the FDIC said. CDOs, which packaged bonds and loans into notes of varying risk and yield, lost money as real estate defaults soared.

Regulators this year have closed the most banks since the savings-and-loan crisis of the 1990s as lenders struggle with mounting losses on mortgages and commercial loans. The total for 2009 is more than double the 25 banks shuttered in 2008 and surpasses the 50 that were closed in 1993. The prior year there were 181 failures or government-assisted transactions.

The FDIC estimates these seizures will cost its insurance fund $314.3 million. The regulator imposed an emergency fee in May to raise $5.6 billion to rebuild the fund, which has deteriorated in the past 18 months. More assessments are possible, the FDIC said.