Current Accounting and Disclosure Issues in the Division of Corporation Finance November 30, 2006 Prepared by Accounting Staff Members in the Division of Corporation Finance U.S. Securities and Exchange Commission Washington, D.C. The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publication or statement of any of its employees. This outline was prepared by members of the staff of the Division of Corporation Finance, and does not necessarily reflect the views of the Commission, the Commissioners, or other members of the staff. Table of Contents I. RECENT RULES, PROPOSED RULES, INTERPRETIVE BULLETINS, AND OTHER COMMISSION ACTIVITY ............................................................................................... 1 A. Final Rules Regarding Executive Compensation (New) ............................................................................1 B. Employee Stock Options...............................................................................................................................4 1. Staff Letter Summarizing Views Regarding Accounting for Stock Options (New)...................................4 2. Staff Accounting Bulletin 107....................................................................................................................4 3. Valuation of Employee Stock Options .......................................................................................................5 C. Quantifying Misstatements (New)................................................................................................................6 D. Final Rules Regarding Use of Form S-8, Form 8-K, and Form 20-F by Public Shell Companies (Updated).................................................................................................................................................................6 E. Rules and Concept Release Regarding the Use of Tagged Data and Incentives to Voluntarily Submit XBRL Information (Updated) ...............................................................................................................................8 F. Accelerated Filer Definitions and Deadlines for Filing Periodic Reports (Updated) ..............................9 1. Summary of Requirements .........................................................................................................................9 2. Definitions................................................................................................................................................11 G. Management’s Report on Internal Control over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports (Updated).....................................................................................................13 H. Final Rule Regarding Tender Offer Best-Price Rule (New) ....................................................................19 I. Rule Proposal Related to Foreign Private Issuer Deregistration (New).................................................19 J. Final Rule regarding IFRS First-time Adopters.......................................................................................20 K. Rule Proposals Related to Proxy Materials ..............................................................................................21 1. Proposals Regarding Internet Availability of Proxy Materials.................................................................21 i L. Electronic Access to Comment and Response Letters and Notifications of Effectiveness ....................21 1. Public Release of Comment Letters and Responses.................................................................................21 2. Electronic Notifications of Effectiveness (New) ......................................................................................22 M. Recent Enforcement Actions Involving GAAP ....................................................................................22 1. Enforcement Actions involving McAffee, Inc. (New) .............................................................................22 2. Enforcement Actions involving American International Group, Inc. (AIG) (New).................................23 3. Enforcement Actions involving Tyco International Ltd. (New)...............................................................24 4. Enforcement Actions involving Netopia, Inc. (New) ...............................................................................25 5. Enforcement Actions involving Dollar General Corporation (Updated)..................................................26 6. Enforcement Actions involving Raytheon Company (New) ....................................................................27 N. Recent Enforcement Actions Involving MD&A .......................................................................................29 1. Enforcement Action involving The Coca-Cola Company........................................................................29 2. Enforcement Actions involving Kmart.....................................................................................................30 II. OTHER CURRENT ACCOUNTING AND DISCLOSURE ISSUES........................... 31 A. Adoption of a New Accounting Standard in an Interim Period (New)...................................................31 B. Classification and Measurement of Warrants and Embedded Conversion Features (Updated) .........32 1. Freestanding Instruments - Warrants........................................................................................................32 2. Embedded Conversion Features – Convertible Debt and Convertible Preferred Stock............................33 C. Statement of Cash Flows (Updated) ..........................................................................................................35 1. Discontinued Operations (New) ...............................................................................................................35 2. Insurance Proceeds (New)........................................................................................................................36 D. Oil and Gas (Updated) ................................................................................................................................37 E. Leasing .........................................................................................................................................................38 1. Accounting ...............................................................................................................................................38 2. Disclosure.................................................................................................................................................38 F. Revenue ........................................................................................................................................................39 1. Buy/Sell Arrangements (Updated) ...........................................................................................................39 2. Service Contracts and the use of SOP 81-1 ..............................................................................................39 3. Disclosure.................................................................................................................................................40 G. Business Combinations ...............................................................................................................................41 1. Purchase Price Allocation and Use of Residual Method ..........................................................................41 2. Date of Annual Goodwill Impairment Testing .........................................................................................42 H. Investments ..................................................................................................................................................42 1. Other-Than-Temporary Declines in Value (Updated)..............................................................................42 2. Government-Sponsored Enterprises .........................................................................................................44 3. Auction Rate Securities ............................................................................................................................44 I. Contingencies, Loss Reserves, and Uncertain Tax Positions (Updated).................................................45 1. Accounting and Financial Statement Disclosure......................................................................................45 2. Discussion in MD&A (New)....................................................................................................................45 J. Pension, Post Retirement, and Post Employment Plans ..........................................................................46 1. Selection of Discount Rates under FASB Statement Nos. 87 and 106.....................................................46 2. Disclosure.................................................................................................................................................47 ii K. FIN 46 and Deconsolidation .......................................................................................................................49 L. Segment Disclosure .....................................................................................................................................50 1. Identification