August 6, 2007
FASB Proposals: Separate Accounting for Conversion of Convertible Bonds and Applying “Shortcut Method” of Hedge Accounting
Companies with converts beware! A soon-to-be released proposed FASB Staff Position would require companies with convertible debt that may be settled in cash to account for the debt and equity components separately. The proposal would require separate accounting to be applied retrospectively to both new and existing convertible instruments – and would thereby affect net income and earnings per share reported by many issuers of these convertible instruments. Learn more in our “Convertible Debt Offerings” Practice Area.
Also, the FASB has proposed guidance that would require companies to evaluate previous and new hedges of interest rate risk, with fewer of them qualifying to use the simplified “shortcut method” of hedge accounting under Statement 133’s requirements. More companies may therefore need additional systems to track the data and the evaluations for far more demanding hedge accounting. Learn more in our “Derivates” Practice Area.
Congressional Report Released: Aguirre Firing and Hedge Fund Investigation
On Friday, the Senate Finance and Judiciary Committees issued a joint report (108 pages, 711 pages with exhibits) regarding the investigation into the SEC’s firing of former Enforcement Staffer Gary Aguirre, who had been investigating suspicious trading at Pequot Capital Management, a hedge fund. Among other criticisms of the SEC, the report notes that the SEC had unnecessary delays in the Pequot investigation, high-level Staffers disclosed sensitive case information to lawyers that represented those under scrutiny and the appearance of “undue deference” to a prominent Wall Street executive that resulted in the postponement of his interview until after the case’s statute of limitations had expired. This is all not too far from the findings of the interim report issued six months ago.
Saturday’s NY Times included this lengthy article on the final joint report.
SEC Posts Trio of Releases
On Friday, the SEC posted these three releases:
– proposing release for revision of Regulation D limited offering exemptions
– adopting release for definition of “significant deficiency”
– adopting release for prohibition of fraud by advisers and accredited investors
– Broc Romanek