1. 1 U.S. Securities and Exchange Commission Current Accounting Initiatives and Topics Presentation to NARUC Douglas T. Parker Professional Accounting Fellow Office of the Chief Accountant U.S. Securities and Exchange Commission October 13, 2008

2. 2 The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. Therefore, the views expressed today are my own, and do not necessarily reflect the views of the Commission or the other members of the staff of the Commission. Disclaimer

3. 3 Discussion Topics Interacting with the SEC Interacting with the SEC IFRS in the U.S. IFRS in the U.S. Advisory Committee on Improvements to Financial Reporting Advisory Committee on Improvements to Financial Reporting Materiality and Correction of Errors Materiality and Correction of Errors Use of Judgment Use of Judgment Interactive Data Interactive Data Fair Value Fair Value Other Initiatives Other Initiatives

4. 4 Interacting with the SEC

5. 5 Who We Are SEC registrants and their auditors may interact with the agency through the: Division of Corporation FinanceDivision of Corporation Finance Office of the Chief AccountantOffice of the Chief Accountant

6. 6 Division of Corporation Finance Mission is to see that investors are provided with material information in order to make informed investment decisions Mission is to see that investors are provided with material information in order to make informed investment decisions Mandated to review SEC filings at least once every three years Mandated to review SEC filings at least once every three years Responding to comment letters Responding to comment letters

7. 7 Office of the Chief Accountant Chief Accountant Principal advisor to the Commission on accounting and auditing mattersPrincipal advisor to the Commission on accounting and auditing matters Main groups in OCA AccountingAccounting Professional Practice (Audit and Independence)Professional Practice (Audit and Independence) International AffairsInternational Affairs Interactive Disclosure (XBRL)Interactive Disclosure (XBRL)Responsibilities Rulemaking, interpretive guidance and reportsRulemaking, interpretive guidance and reports Oversight of standard settingOversight of standard setting ConsultationsConsultations

8. 8 Consultations Whom to Contact Division of Corporation Finance Division of Corporation Finance Reporting questions Reporting questions E.g., application of regulation S-X E.g., application of regulation S-X Requests for waivers / accommodations from reporting requirements Requests for waivers / accommodations from reporting requirements Contact: 202-551-3400 or DCAOletters@sec.gov Contact: 202-551-3400 or DCAOletters@sec.gov Office of the Chief Accountant Office of the Chief Accountant Accounting or auditor independence questions Accounting or auditor independence questions Contact: 202-551-5300 or OCA@sec.gov Contact: 202-551-5300 or OCA@sec.gov

9. 9 Consultations Consultations with OCA Discussion with OCA staff membersDiscussion with OCA staff members Pre-filing basis – requests from registrantsPre-filing basis – requests from registrants Post-filing basis –Post-filing basis – Internal consultations from Divisions of Corporation Finance and EnforcementInternal consultations from Divisions of Corporation Finance and Enforcement Requests from registrantsRequests from registrants

10. 10 Consultations with OCA Guidance for Pre-Filing Consultations Take advantage of it!Take advantage of it! Most companies just “want to get the accounting right.” We want to help.Most companies just “want to get the accounting right.” We want to help. Perhaps easier than post-filing basis (e.g., comment letter process)Perhaps easier than post-filing basis (e.g., comment letter process) Guidance for resolving ‘pre-filing’ questions is posted on the SEC’s websiteGuidance for resolving ‘pre-filing’ questions is posted on the SEC’s website http://www.sec.gov/info/accountants/ocasubguidance.htmhttp://www.sec.gov/info/accountants/ocasubguidance.htm

11. 11 IFRS in the U.S.

12. 12 Background IFRS has become more prevalent over the past several years Over 100 countries permit or require the use of IFRS Over 100 countries permit or require the use of IFRS Since 2002, the FASB and IASB agreed to work together to converge U.S. GAAP and IFRS Since 2002, the FASB and IASB agreed to work together to converge U.S. GAAP and IFRS Business combinations Business combinations Financial statement presentation Financial statement presentation Conceptual framework Conceptual framework Revenue recognition Revenue recognition Leases Leases

13. 13 Foreign Private Issuers FPIs are now permitted to file without a reconciliation to U.S. GAAP in certain cases Adopting release issued in December 2007 – available at http://www.sec.gov/rules/final/2007/33-8879.pdf Adopting release issued in December 2007 – available at http://www.sec.gov/rules/final/2007/33-8879.pdf Effective for fiscal years ended after December 15, 2007 Effective for fiscal years ended after December 15, 2007 Only applies to FPIs reporting under IFRS as issued by the IASB Only applies to FPIs reporting under IFRS as issued by the IASB Currently, more than 100 FPIs report under IFRS without a reconciliation Currently, more than 100 FPIs report under IFRS without a reconciliation Estimated to increase to approximately 500 by 2011 Estimated to increase to approximately 500 by 2011

14. 14 U.S. Issuers SEC considering use of IFRS as issued by the IASB by U.S. issuers Concept release issued in August 2007 Concept release issued in August 2007 Roundtables held in December 2007 and August 2008 Roundtables held in December 2007 and August 2008 Proposing release Proposing release Comments due 60 days from publication in Federal Register Comments due 60 days from publication in Federal Register Main proposed provisions Main proposed provisions Roadmap to possible Commission decision on mandatory adoption Roadmap to possible Commission decision on mandatory adoption Optional IFRS adoption Optional IFRS adoption

15. 15 U.S. Issuers – IFRS Proposing Release Roadmap to possible Commission decision on mandatory adoption Identifies milestones to achieve prior to possible Commission decision Identifies milestones to achieve prior to possible Commission decision IFRS’s continued improvement IFRS’s continued improvement Greater accountability and more stable funding of IASB’s governing body Greater accountability and more stable funding of IASB’s governing body IFRS XBRL taxonomy IFRS XBRL taxonomy Education and training Education and training

16. 16 U.S. Issuers – IFRS Proposing Release Roadmap to possible Commission decision on mandatory adoption Expects decision regarding mandatory IFRS adoption in 2011, effective for fiscal years ending on or after December 15, Expects decision regarding mandatory IFRS adoption in 2011, effective for fiscal years ending on or after December 15, 2014 for large accelerated filers 2014 for large accelerated filers 2015 for accelerated filers 2015 for accelerated filers 2016 for non-accelerated filers 2016 for non-accelerated filers May consider early adoption for those companies not eligible in 2009 May consider early adoption for those companies not eligible in 2009

17. 17 U.S. Issuers – IFRS Proposing Release Optional IFRS Adoption Certain U.S. issuers may file under IFRS for years ending on or after December 15, 2009 Certain U.S. issuers may file under IFRS for years ending on or after December 15, 2009 Eligible companies Eligible companies Must meet two criteria Must meet two criteria Among the 20 largest companies in their industry Among the 20 largest companies in their industry IFRS must be used more than any other GAAP amongst the 20 largest companies in that industry IFRS must be used more than any other GAAP amongst the 20 largest companies in that industry Receive a no-objection letter from SEC staff in response to their justification of their eligibility Receive a no-objection letter from SEC staff in response to their justification of their eligibility At least ~110 companies in ~34 industries estimated to be eligible, representing ~14% of U.S. market capitalization At least ~110 companies in ~34 industries estimated to be eligible, representing ~14% of U.S. market capitalization

18. 18 U.S. Issuers – IFRS Proposing Release Optional IFRS Adoption Seeks comments on U.S. GAAP reconciliation Seeks comments on U.S. GAAP reconciliation Option A: disclose an audited reconciliation of U.S. GAAP to IFRS only in the first year of reporting under IFRS (consistent with IFRS 1) Option A: disclose an audited reconciliation of U.S. GAAP to IFRS only in the first year of reporting under IFRS (consistent with IFRS 1) Option B: Option A AND disclose unaudited reconciliation of IFRS to U.S. GAAP on an ongoing basis for all periods presented Option B: Option A AND disclose unaudited reconciliation of IFRS to U.S. GAAP on an ongoing basis for all periods presented

19. 19 U.S. Issuers – Application of IFRS to Energy & Utility Companies Potentially significant differences from U.S. GAAP: Accounting for the effects of regulation Accounting for the effects of regulation Impairment Impairment Financial instruments Financial instruments Inventories Inventories

20. 20 Advisory Committee on Improvements to Financial Reporting (CIFiR)

21. 21 Advisory Committee on Improvements to Financial Reporting (CIFiR) Emanated from concerns about complexity of financial reportingEmanated from concerns about complexity of financial reporting Examined the U.S. financial reporting system toExamined the U.S. financial reporting system to increase usefulness to investors andincrease usefulness to investors and reduce complexityreduce complexity Chaired by Robert PozenChaired by Robert Pozen Composed of preparers, investors, audit committee representatives, auditors, attorneys and regulatorsComposed of preparers, investors, audit committee representatives, auditors, attorneys and regulators Observers from the FASB, PCAOB, IASC, Federal Reserve Board and Department of TreasuryObservers from the FASB, PCAOB, IASC, Federal Reserve Board and Department of Treasury

22. 22 Advisory Committee on Improvements to Financial Reporting (CIFiR) 12-month duration concluded with issuance of final report on August 1, 200812-month duration concluded with issuance of final report on August 1, 2008 Final report includes 25 recommendations in four areas:Final report includes 25 recommendations in four areas: Substantive complexitySubstantive complexity Standards-setting processStandards-setting process Audit process and complianceAudit process and compliance Delivering financial informationDelivering financial information SEC staff studying recommendations for possible future actionSEC staff studying recommendations for possible future action Materials available at http://www.sec.gov/about/offices/oca/acifr.shtmlMaterials available at http://www.sec.gov/about/offices/oca/acifr.shtml

23. 23 Advisory Committee on Improvements to Financial Reporting (CIFiR) Substantive Complexity Judicious expansion of fair valueJudicious expansion of fair value Improved financial statement presentationImproved financial statement presentation Development of a disclosure frameworkDevelopment of a disclosure framework Coordination of SEC and FASB to regularly assess continued relevance of disclosure guidanceCoordination of SEC and FASB to regularly assess continued relevance of disclosure guidance Reduction of bright lines in accounting guidanceReduction of bright lines in accounting guidance Reduction in exceptions to general principles, such as:Reduction in exceptions to general principles, such as: Industry-specific guidanceIndustry-specific guidance Alternative accounting policiesAlternative accounting policies Scope exceptionsScope exceptions Competing modelsCompeting models

24. 24 Advisory Committee on Improvements to Financial Reporting (CIFiR) Standards-Setting Process Afford investor perspectives pre-eminence in standards- setting Afford investor perspectives pre-eminence in standards- setting Continue to enhance governance of the FASB Continue to enhance governance of the FASB Create a Financial Reporting Forum Create a Financial Reporting Forum Enhance FASB’s field work prior to adoption Enhance FASB’s field work prior to adoption Formalize post-adoption reviews of new standards and periodic assessments of existing standards Formalize post-adoption reviews of new standards and periodic assessments of existing standards Clarify authoritative vs. non-authoritative guidance Clarify authoritative vs. non-authoritative guidance Improve understandability of accounting standards Improve understandability of accounting standards

25. 25 Advisory Committee on Improvements to Financial Reporting (CIFiR) Audit Process and Compliance Materiality Materiality Error Correction Error Correction Reasonableness of accounting judgments Reasonableness of accounting judgments These areas will be discussed later.

26. 26 Advisory Committee on Improvements to Financial Reporting (CIFiR) Delivering Financial information Mandate use of XBRL - to be discussed laterMandate use of XBRL - to be discussed later Provide guidance on the use of corporate websitesProvide guidance on the use of corporate websites Interpretative release available at http://www.sec.gov/rules/interp/2008/34-58288.pdfInterpretative release available at http://www.sec.gov/rules/interp/2008/34-58288.pdf Comments due November 5, 2008Comments due November 5, 2008 Encourage development of key performance indicatorsEncourage development of key performance indicators Encourage issuance of updated guidance on best practices for earnings releasesEncourage issuance of updated guidance on best practices for earnings releases Mandate inclusion of executive summary in filingsMandate inclusion of executive summary in filings

27. 27 Materiality and Corrections of Errors

28. 28 Background Existing guidance Existing guidance Additional issues Additional issues SEC staff studying CIFiR recommendations SEC staff studying CIFiR recommendations

29. 29 CIFiR’s Recommendations MaterialityMateriality Based on perspective of reasonable investorBased on perspective of reasonable investor Consider total mix of informationConsider total mix of information Error correctionError correction All errors, except clearly insignificant ones, should be corrected promptlyAll errors, except clearly insignificant ones, should be corrected promptly HOWEVER, do not always restate and amendHOWEVER, do not always restate and amend DisclosureDisclosure

30. 30 CIFiR’s Recommendations Interim periodsInterim periods Same principles applySame principles apply Restatement of interim period does not always require restatement of annual periodRestatement of interim period does not always require restatement of annual period Dark period disclosuresDark period disclosures Nature of errorNature of error Impact of errorImpact of error Management responseManagement response

31. 31 Use of Judgment

32. 32 Use of Judgment Why importantWhy important ExamplesExamples CIFiR recommendationCIFiR recommendation SEC should articulate how it evaluates the reasonableness of accounting judgmentsSEC should articulate how it evaluates the reasonableness of accounting judgments SEC staff studying recommendationSEC staff studying recommendation

33. 33 CIFiR’s Suggested Factors When evaluating reasonableness of judgments, SEC should consider preparer’s consideration of: Facts, including substance of transaction Facts, including substance of transaction Accounting literature Accounting literature Alternative views Alternative views Investors’ information needs Investors’ information needs Input from those with professional expertise Input from those with professional expertise Known diversity in practice Known diversity in practice Consistency with application to other similar transactions Consistency with application to other similar transactions Appropriateness and reliability of assumptions and data Appropriateness and reliability of assumptions and data

34. 34 Interactive Data

35. 35 Potential Benefits What is interactive data?What is interactive data? Benefits to investors, analysts & other usersBenefits to investors, analysts & other users Direct, real-time access to instantly consumable dataDirect, real-time access to instantly consumable data Interactive, personalized analysisInteractive, personalized analysis Lower cost of more complete data setLower cost of more complete data set Benefits to registrants and preparers of reportsBenefits to registrants and preparers of reports Efficient preparation, internal data collection, analysis and release of informationEfficient preparation, internal data collection, analysis and release of information Direct communication channel with investors and stakeholdersDirect communication channel with investors and stakeholders

36. 36 Interactive Data Timeline 2008 -Analysis of public comment on proposed rules - Credit rating proposed rule - Proposed rule on oil and gas disclosures in interactive data 2004 Early SEC Analysis of XBRL 7/2006 Roundtables, field work 2005 SEC Establishes Voluntary Filing Program 2005 Chairman Cox identifies XBRL as strategic priority 12/2006 First SEC XBRL Viewer 9/2006 $54mm investment in XBRL, EDGAR modernization 12/2007 Release of Draft US GAAP Taxonomy 7/2007 VFP Expands to Mutual Fund Risk/Return 10/2007 Creation of new SEC Office of Interactive Disclosure 4/2008 Release of Final US GAAP Taxonomy 5/2008 Release of Draft Rule

37. 37 Proposed Rule Requires companies to provide to the Commission financial statements in interactive data format using eXtensible Business Reporting Language, or XBRL.Requires companies to provide to the Commission financial statements in interactive data format using eXtensible Business Reporting Language, or XBRL. Covers:Covers: Annual and quarterly reportsAnnual and quarterly reports Transition reportsTransition reports Securities Act registration statementsSecurities Act registration statements

38. 38 Proposed phase-in schedule Year 1 - domestic and foreign large accelerated filers that use U.S. GAAP and have a worldwide public float above $5 billion. Year 1 - domestic and foreign large accelerated filers that use U.S. GAAP and have a worldwide public float above $5 billion. Year 2 - all other domestic and foreign large accelerated filers using U.S. GAAP would be subject to interactive data reporting. Year 2 - all other domestic and foreign large accelerated filers using U.S. GAAP would be subject to interactive data reporting. Year 3 - all remaining filers using U.S. GAAP and all foreign private issuers that prepare their financial statements in accordance with IFRS as issued by the IASB. Year 3 - all remaining filers using U.S. GAAP and all foreign private issuers that prepare their financial statements in accordance with IFRS as issued by the IASB. If proposed rules are adopted, the first phase would begin with fiscal periods ending on or after December 15, 2008

39. 39 Data tagging details For each phase of implementation: The face of the financial statements would be tagged in each filer's first year of interactive data reporting. The face of the financial statements would be tagged in each filer's first year of interactive data reporting. The financial statement footnotes and financial statement schedules also would be tagged in each filer's first year, but in block text only. The financial statement footnotes and financial statement schedules also would be tagged in each filer's first year, but in block text only. After the first year of such tagging, a filer also would be required to tag the detailed disclosures within the footnotes and schedules. After the first year of such tagging, a filer also would be required to tag the detailed disclosures within the footnotes and schedules.

40. 40 What can I do now? Use available resources to get smart on XBRL http://www.sec.gov/spotlight/xbrl.shtmlhttp://www.sec.gov/spotlight/xbrl.shtml http://www.xbrl.ushttp://www.xbrl.us

41. 41 Fair Value

42. 42 Other Initiatives

43. 43 Other Initiatives Sarbanes-Oxley Act – section 404 Sarbanes-Oxley Act – section 404 Modernization of oil and gas reporting requirements Modernization of oil and gas reporting requirements

44. 44 Questions