(The article featured below is a selection from SEC Today, which is available to subscribers of that publication.)

Corporation Finance Official Speaks About Recent Developments at SEC Institute

Kevin Vaughn, a branch chief in the SEC's Division of Corporation Finance, discussed recent developments at the Division at the SEC Institute's Midyear Reporting Conference. The SEC has been busy over the last six months, he said. The Commission has adopted new rules involving smaller reporting companies, private offering reform, shareholder nominations of directors, electronic shareholder forums, Form S-11 incorporation by reference, two new Staff Accounting Bulletins and the elimination of the GAAP reconciliation requirement for foreign private issuers using International Financial Reporting Standards ("IFRS"). Vaughn noted that SEC staff is participating in training in IFRS in preparation of what is thought to be the eventual adoption of IFRS by domestic firms. He also said that some large banks have created mockup financial statements using IFRS in anticipation of a new IFRS roadmap later in the year.

Vaughn offered a Division perspective on the staff review and comment letter process. He emphasized that the initial comment letter should be viewed as the opening of a dialogue with the staff. He also encouraged filers to take advantage of the reconsideration process, noting that asking for a reconsideration of an initial letter is not viewed as a "black mark" against the company by the SEC staff. Vaughn contrasted the recent comment letter process, where the final comment letter is posted on the SEC's Web site within 45 days of completion, with the old process of obtaining staff comments, which usually required a Freedom of Information Act request.

Vaughn briefly addressed the March 2008 letter regarding fair value disclosure and FAS 157 that was sent to approximately 30 companies and posted on the SEC's Web site. He noted that the letter did not change GAAP in any way and the intent of the staff was just to identify a number of disclosure issues a company should consider in preparing Management's Discussion and Analysis. Fair value is already a complex issue, he said, and in the wake of a "perfect storm" of many factors, chief among them the recent credit crunch, the staff will be focusing on the issue even more. Vaughn identified some fair value issues which he described as particularly difficult, including a situation where current fair value is materially different than what the issuer ultimately expects to realize and sensitivity analysis regarding the effect of using different assumptions. With respect to the latter, assumptions should be reasonably likely rather than hypothetical changes, he said.

Vaughn spoke about the SEC's October report on its targeted review of 350 companies' disclosures under the new executive compensation rules. He stressed that Compensation Discussion and Analysis should describe the issuer's overall compensation plan and the philosophy behind it. CD&A should also describe how the plan was implemented and how the company arrived at specific executive compensation decisions and policies, he said. He emphasized the importance of using plain English in the CD&A. When asked if the staff's observations regarding its initial review of the new rules led to better disclosure, he replied, "definitely."

Other Corporation Finance topics addressed by Vaughn included revenue recognition, litigation settlements and the use of experts' opinions in financial statements. He highlighted the importance of being clear on the triggers for revenue recognition and said that circular policies and boilerplate language should be avoided. Regarding litigation settlements, Vaughn advised preparers to disclose pending litigation. The conclusion of a settlement agreement should not be the first time litigation issues are disclosed, he said.

The SEC staff has noticed an increase in references to valuation professionals and other experts in company filings, Vaughn said. He reminded preparers that if an expert is credited, the expert must be named. He also noted that, although the expert's consent is not required in 1934 Act filings, it is required in 1933 Act filings, which can have implications if 1934 Act filings are incorporated by reference into 1933 Act filings.