Date: November 3rd, 2009

On September 23, 2009, the Financial Accounting Standards Board (“FASB”) tentatively decided that entities will be required to present financial statement items in sections that distinguish between business activities (value creating activities) and financing activities (funding of that value creation) in each of the financial statements — balance sheet, income statement, and cash-flow statement. When finalized, the new standards will require companies and their accountants to modify their accounting practices and reconfigure their financial statements to properly report financial information.

FASB’s decision was part of its deliberations regarding the October 2008 discussion paper entitled Preliminary Views on Financial Statement Presentation (“Discussion Paper”), a joint project with the International Accounting Standards Board. In a departure from the Discussion Paper, FASB agreed to be more specific in defining the required content for the financing section, and directed its staff to draft a definition of the financing section that includes at least two components: treasury assets and financing liabilities. That draft definition will be considered at a future meeting. The original concept of the financing section was described as follows:

“The “financing section” should include a financing asset category and a financing liability category. Financing assets and financing liabilities are financial assets and financial liabilities (as those terms are defined in IFRSs and U.S. GAAP) that management views as part of the financing of the entity’s business and other activities. In determining whether a financial asset or financial liability is part of an entity’s financing activities, management should consider whether the item is interchangeable with other sources used to fund its business activities. For example, an entity could acquire equipment using cash, a lease, or a bank loan. The financing section would normally include liabilities that originated from an entity’s capital-raising activities (for example, a bank loan or bonds) because capital is usually raised to fund value-creating (business) activities.”

The business section would include assets and liabilities that management views as part of its continuing business activities and changes in those assets and liabilities. Business activities are those conducted with the intention of creating value, such as producing goods or providing services. The business section normally would include assets and liabilities that are related to transactions with customers, suppliers, and employees because such transactions usually relate directly to the entity’s value-creating activities.

When they originally issued the Discussion Paper, FASB and IASB declared their goal was to tie the different financial statements more closely together to provide greater detail into financial numbers that are often consolidated at a very high level. By separating business activities – what a company earns from producing goods and delivering services – from financing activities, the objective is for financial statements to more clearly distinguish income from core business operations and capital raised through financing activities, such as cash raised in securities transactions, bank loans, bonds, and other items that arise from general capital-raising efforts.

The Board’s decision is not yet final and may be changed at future Board meetings. Nevertheless, the Board’s tentative decision is a significant indication that the overhaul of financial statement standards is coming. We will continue to monitor the Board’s proceedings and provide an update when a final standard is issued.