(The news featured below is a selection from the news covered in Federal Securities Law Reporter, which is distributed to subscribers of Federal Securities Law Reporter.)

SEC Issues Guidance on Restatements for Option Grant Accounting Errors

Carol Stacey, the chief accountant in the SEC's Division of Corporation Finance, has issued filing guidance for companies that must restate their previously issued financial statements to correct accounting errors relating to the issuance of stock option grants. The guidance will allow companies to restate in one filing for a number of years rather than separately amending all of the previously filed reports. By reporting all of the information in one filing, companies believe it will more clearly reflect the impact of the restatement.

Ms. Stacey said the staff will not raise further comment with respect to a company's need to amend prior Exchange Act filings to restate financial statements and related MD&A if the company amends its most recent Form 10-K and includes certain comprehensive disclosure outlined in her letter. If a company's next Form 10-K is due within two weeks of the amendment the company would file in response to the guidance, Ms. Stacey advised that the staff would not comment if the company includes the specified disclosure in the next Form 10-K rather than in an amendment to the most recent Form 10-K.

The disclosure in the Form 10-K or 10-K amendment must include an explanatory note at the beginning that discusses the reason for amending the financial statements. The selected financial data for the most recent five years as required by Regulation S-K Item 301 must be disclosed in columns that are labeled "restated." The MD&A based on the restated annual and quarterly financial information must explain the operating results, trends and liquidity during each interim and annual period that is presented. The interim period discussion may be incorporated into the annual period discussion or presented separately. The audited financial statements for the most recent three years should be restated, as necessary, and include columns that are labeled "restated."

If the interim period information for the most recent two fiscal years as required by Regulation S-K Item 302 has to be restated, the information presented for the balance sheets and statements of income should provide a level of detail consistent with Regulation S-X Article 10-01(a)(2) and (3) and the appropriate portions of 10-01(b). The columns should be labeled "restated." There is no need to present cash flow information since it is not required by Item 302.

The footnote disclosure which reconciles the previously filed annual and quarterly financial information with the restated financial information should be presented on a line-by-line basis, and for each material type of error separately for the periods presented in the audited financial statements, in the selected financial data and in the interim period information. Companies also must include the disclosure referred to in the chief accountant's letter dated September 19, 2006, as it applies to their restatement.

Companies must disclose in the audited financial statement footnote the nature and amount of each material type of error that is included in the cumulative adjustment to opening retained earnings. Ms. Stacey outlined the manner in which the audited financial statement footnote disclosure of the restated stock compensation cost should be presented. The letter also describes the appropriate revisions to previous disclosure under Items 9A and 9B.

Ms. Stacey advised that the guidance does not ensure that the division will not comment on or require changes in a company's Form 10-K amendment or Form 10-K that includes the comprehensive disclosure. The guidance does not represent a staff conclusion that the company has complied with all of the applicable financial statement requirements or that the company has satisfied all of the rule and form eligibility requirements of the Securities and Exchange Acts, nor that the company is current in the filing of its Exchange Act reports and has complied with all of the Exchange Act reporting requirements.

The guidance does not foreclose the possibility of an enforcement action with respect to the disclosure, the filings or the failure to file, or any action under Sarbanes-Oxley Act Section 304 relating to the forfeiture of certain bonuses and profits based on periods that required restatements. Ms. Stacey added that the Office of the Chief Accountant continues to consider matters related to the accounting for stock options.

The interpretive guidance will be published in a forthcoming Report.