FASB Reaffirms Codification To Become Official GAAP July 1; Update On Going Concern

June 3, 2009

FEI Summary

At its June 3, 2009 board meeting, the Financial Accounting Standards Board FASB reaffirmed that its Accounting Standards Codification will become the single source of official U.S. GAAP on July 1. In practical terms, the board also agreed that the effective date for the amendment to the GAAP Hierarchy to effect this change, anticipated to be issued in FAS 168 – the final FASB standard under the old numbering system – will be effective for financial statements for interim or annual periods ending on or after September 15, 2009. See FASB's press release. Read more about the Codification here.

During the board meeting, FASB Chairman Robert Herz described upcoming FAS 168 amending the GAAP Hierarchy as the last standard that will be issued “BC” or Before the Codification. (Note: Presumably FAS 166 and FAS 167 will be issued as the upcoming amendments to FAS 140 and FIN 46R.)

Also at the June 3 board meeting, FASB agreed to consider certain changes to its proposed standard on Going Concern, and they will likely re-expose the proposed standard for public comment. The staff noted that some constituents had suggested providing a more prescriptive or quantifiable means of determining what ‘substantial doubt’ (as to remaining a going concern) meant, and staff proposed changing the definition to ‘more than remote.’ This met with some opposition from some of the board members, who thought that changing the definition to more than remote, on top of changing the time horizon from a 12 month bright line to something more qualitative, could potentially result in 90% of companies reporting a going concern.

FASB Technical Director Russ Golden summed up where the board and staff are at on their redeliberation of the proposed standard on Going Concern as follows: " I hear you like a low, more-than-remote threshold for additional disclosures... we will look at [SOP] 94-6 [Disclosure of Significant Risks and Uncertainties], come back with [proposed] improvements - low threshold for disclosures, high [threshold] for liquidation basis, time frame to consider is also important... [i.e. the wording with respect to what to consider that may occur after 12 months]." There was some discussion about whether some of these issues are in the realm of PCAOB auditor guidance vs. FASB guidance; FASB staff said they have been dialoguing with PCAOB staff and will continue to do so.

With more changes being made to the original proposed standard on Going Concern, Board member Leslie Seidman noted, "We are almost certainly going to reexpose" the proposed standard for public comment.

Embedded Derivatives

In other matters discussed by the board today, FASB decided to make certain changes to proposed guidance relating to embedded derivatives (Proposed DIG Issue C-22) . FASB staff anticipate releasing the revised proposal in July for a 45 day comment period. Further details on this issue are on pdf pages 11-19 of the June 3 board handout.

Where to Find More Info

Refer to FASB's official Summary of Board Decisions posted in FASB's News Center. For the latest news on these and other FASB developments, tune into FEI’s June 9 webcast, “What’s New With FASB?” featuring FASB Technical Director Russ Golden, Deloitte Partner Bob Uhl, E&Y Partner Carlo Pippolo, and moderator Steve Burkholder of BNA. Free for FEI members, $50 for nonmembers. Register here.

Prepared June 3, 2009 by Edith Orenstein, director, Accounting Policy Analysis, Financial Executives International (FEI). This summary does not represent FEI opinion unless specifically noted above.