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FASB Closes the ‘Lehman Loophole’

FASB issued Accounting Standards Update No. 2011-03 to improve the financial reporting of repurchase agreements, also called “repos,” or other transactions that govern the transfer and repurchase of financial assets. The new guidance gives companies some new parameters to consider in determining whether a transfer is in fact a sale of an asset, and therefore qualifies for sale treatment, or whether an entity has retained some control over the asset and therefore cannot claim to have sold it. [CW]

Report: Nearly 20% of Financial Statement Users Think the Auditor’s Report Is Worthless

Last December, the PCAOB announced that they were going to kick around some ideas for a new and improved audit model. See, you may have heard about a few financial institutions that, it turned out, weren’t in such great shape. Funny thing – all these companies had clean audit opinions. This got people asking pretty awkward questions out loud like, “Are Auditors Irrelevant?” and making statements such as, “Get rid of [them]” AND “They add no value.”

The PCAOB listened to all this gnashing of teeth for about a year (or maybe their entire existence) and they came to the conclusion that some conversations needed to be had and even some changes might be appropriate. What exactly does that mean? Well, it sounds like we’ll hear some suggetions next Thursday when the next Standing Advisory Group meeting is held but in the meantime, the PCAOB’s Investor Advisory Group was plenty busy today, making several presentations that included some very interesting findings.

The first is “Improving the Auditor’s Report” that was prepared by Joseph Carcello of the University of Tennessee, Norman Harrison of Breeden Capital, Gus Sauter of Vanguard and Ann Yerger of the Council of Institutional Investors. Some items worth noting:

• 45% of respondents believe that the current audit report does not provide valuable information that is integral to understanding financial statements while 23% of respondents believe the current audit report provides valuable information.

18% believe the auditor report is of no use to them at all.

Two selected comments from the report: “The statement feels very binary. Either a qualified opinion or not. Not a lot of incremental information once a company gets an unqualified opinion.” and “The audit report is valuable both because of what it says, i.e., an opinion, and by virtue of what it does not say, i.e., an exception.”

Examples of disclosures that users were asked about: Disclosure of risks (“77% believe auditor should disclose areas with greatest financial statement and audit risk and the audit work performed in those areas”); disclosure of audit hours (“51% believe the auditor should not be required to disclose hours spent on individual financial statement accounts”); materiality thresholds (“56% believe the auditor should disclose quantitative and qualitative materiality thresholds and considerations”); audit partner signature (“44% support requiring the audit partner to personally sign the audit opinion”).

There’s more where this came from so check out the full presentation for some interesting reading. We’ll have more tomorrow.

Charlie Gasparino: “As of right now” Erin Callan Won’t Be Charged By the SEC

But next Monday, Wednesday or post-Labor Day, it could be a completely different story!

We’re waiting on the video from our friends over at FBN but for now here’s what the Fox Business News Breaking specialist has for us:

On who from Lehman Brothers will be charged by the SEC:
“There is a lot of speculation as to who will be charged in the SEC’s investigation of Lehman Brothers. As of right now at least, it will not be the former CFO Erin Callan.”

On how we know Callan is not being charged:
“Attorney for Callan Robert Cleary tells FBN she has not received a Wells Notice. As of right now she is not going to get charged. It could still come.”

On when the charges will be filed:
“This is an interesting development because the end game on this is clearly happening. And it’s the two year anniversary of Lehman’s bankruptcy Callan was one of the people putting out the positive image of the firm as it was imploding that’s what they are investigating.”

So there you have it! Things are day-to-day for Ms Callan (i.e. kicking it in the Hamptons, dating a fire fighter). The situation remains fluid.

Charlie Gasparino Suggests That Erin Callan Should Be Shaking in Her Designer Boots

“At least part of it is focused on the March 2008 capital raise where they went out and did a preferred deal. Erin Callan made some very positive bullish statements about Lehman. About how the nature of its finances would mean that it did not need more capital and three months later Lehman Brothers needed more capital and then came the decline of the firm.”

~ The Fox Business Correspondent/Ace Reporter insists that an announcement is “imminent.” That’s what the rumor mill says anyway.