Mayer Hoffman McCann 2010 Year End Reporting Update

Mayer Hoffman McCann (MHM) is pleased to provide its clients and friends with this 2010 year-end reporting update. The following update includes certain reminders for relevant topics as well as a summary of new standards which will likely have a significant impact on a broad range of companies in either 2010 or 2011 (note this summary is not intended to be an all inclusive listing). A complete summary of recently issued pronouncements as well as exposure drafts outstanding can be found at FASB.org.

The past year once again represented a challenging year for all aspects of the business community and brought with it many new and proposed accounting standards. The Financial Accounting Standard Board (FASB) remains on an unprecedented pace of issuing new pronouncements in several areas, such as fair value, financial instruments, revenue recognition, leases, and many more. We continue to witness the convergence of U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) through these FASB projects. We also saw a task force of the American Institute of Certified Public Accountants (AICPA) recommend that a separate standard setting body be established for the development of acceptable accounting principles for private companies. The following summary is intended to assist those tasked with the financial reporting process to navigate these and other ever changing complexities of the financial reporting process. Please contact your MHM professional for assistance in any of these matters.

Fair Value (ASC 820)

The FASB issued Accounting Standards Update (ASU) 2010-06 Improving Disclosures about Fair Value Measurements in January 2010. The ASU continues to expand on the FASB’s fair value project and includes new guidance which applies to all entities required to provide disclosures about recurring and nonrecurring fair value measurements. We would

like to take this opportunity to remind users of the far reaching impact of ASC 820, and remind financial statement preparers that ASC 820’s impact is not limited to financial institutions. ASU 2010-06 expands the disclosure requirements for all entities, by requiring new disclosures of the following:

• Transfers into and out of Levels 1 and 2. A reporting entity should disclose separately the type and amount of significant transfers into and out of Level 1 and Level 2 fair value measurements and describe the reasons for thetransfers.

• Activity in Level 3 fair value measurements. In the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting entity should present separately information about purchases, sales, issuances, and settlements (that is, on a gross basis rather than as one net number). See below for the effective date of this requirement. ASU 2010-06 also clarified existing guidance for the following:

• Level of disaggregation. A reporting entity should provide fair value measurement disclosures for each class of assets and liabilities presented. A class is often a subset of assets or liabilities within a line item in the statement of financial position. A reporting entity will need to use judgment in determining the appropriate classes of assets and liabilities, however it is anticipated the disclosure by class will result in greater disaggregation than that shown on the balance sheet. The disaggregation should consider both the nature and underlying risk of the assets or liabilities. Companies should look to internal analysis and consider external expectations when determining the individual classes to be disclosed.

• Disclosures about inputs and valuation techniques. A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. These disclosures are required for fair value measurements classified as either Level 2 or Level 3. The disclosure should include all aspects of the valuation techniques that are relevant to determining the estimated fair value, including considerations such as market observable inputs, non-market observable inputs, estimates impacting the determination of non-market observable inputs, and estimates impacting credit risk. Such disclosures should be provided for each class presented (as determined based on the disaggregation criteria). Fair value estimates for debt issued by a company should consider the risk of non-performance by that entity, and changes to that credit risk as a result of operations, changes in market conditions, market expectations, etc. Companies also need to consider the impact of imbedded features that may not be accounted for separately, such as conversion features, puts, calls (such as a prepayment clause), floors, caps, etc.

The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, (January 1, 2010 for calendar year-end companies) The disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.

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The information in this MHM Messenger is a brief summary and may not include all the details relevant to your situation. Please contact your MHM service provider to further discuss the impact on your financial statements.

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