According to The National Executive Board of the American Woman’s Society of Certified Public Accountants (AWSCPA), the September 11 terrorist attacks qualify as an extraordinary event under the criteria of APB 30 for some businesses. It may not qualify for other businesses, however.
For example, the event would be unusual for any investment bank with offices in the World Trade Towers, it reported. Conversely, it would not be unusual for airlines and insurance companies.
“The National Executive Board of AWSCPA believes that the issue is not the classification of the event but rather the ability to accurately measure the costs that deny extraordinary event treatment to the…tragedy,” noted a press release. “It will be very difficult to quantify the financial effects of lost revenue, business interruption, employee hiring and training, employee counseling programs, recreations of information, loss of fixed assets, locating new place of business etc. on one line item-extraordinary event.”
In a ruling at the end of September, FASB’s Emerging Issues Task Force concluded that the September 11 terrorist attacks were not an “extraordinary” event…at least from an accounting standpoint, reversing a stance it took just days earlier.
The AWSCPA recommends the use of footnotes to the financial statements as a way to disclose additional information that would be beneficial to the their readers. “This position is consistent with the position taken by the AICPA,” it added.
The AWSCPA also recommended following Task Force guidance to determine whether the losses and costs meet the criteria for disclosure of unusual and infrequently occurring items. “If so, these costs and losses should be listed as a separate component of income from continuing operations,” it stated.
SEC Names Cutler Head of Enforcement
The Securities and Exchange Commission named Stephen M. Cutler as director of the Division of Enforcement.
Cutler, who joined the commission in 1999, has served as interim enforcement director since July. He will oversee several high-profile SEC initiatives, including accounting investigations, and an ongoing inquiry into initial public offerings. He succeeds Richard Walker.
Before joining the commission, Cutler was a partner at the Washington, D.C., law firm of Wilmer, Cutler & Pickering, where he specialized in securities enforcement and litigation, as well as broker- dealer regulation and compliance.
In September, SEC chairman Harvey Pitt named Robert Herdman, a former senior partner with Ernst & Young, as its new top accountant.
“I am extremely pleased that Steve Cutler will be our new director of enforcement,” Pitt said in a statement. “His keen intellect, superb judgment and passion for investor protection have impressed me and everyone else with whom he’s worked.”
Moody’s Cuts AT&T’s Rating
Moody’s Investors Service cut AT&T Corp.’s long-term debt rating to A3, its fourth-lowest investment grade, from A2. It also slashed the senior unsecured debt rating for AT&T’s broadband operations from A3 to Baa1, and knocked the communications company’s short-term rating to Prime-2 from Prime-1. The downgrades affect about $53 billion of debt.
In the early 1980s, AT&T was rated AAA by both Moody’s and Standard & Poor’s. Observers note that yesterday’s downgrade could make it particularly tough for the telecom company to issue commercial paper. Many institutions can buy only a limited amount of Prime-2 rated paper, and some institutional investors can purchase no Prime-2 debt at all.
“The rating actions reflect the deterioration in the prospective performance of the company’s telephony operations and concerns that debt reduction efforts from the sale or monetization of non-core assets are likely to fall short of previous expectations,” Moody’s said in a press release.
In other downgrade news, Moody’s cut its rating on Ericsson’s senior debt to Baa1. It said the outlook for Ericsson’s debt rating remained negative.
Other Financing News
As the Enron Turns
The Enron Corp. saga gets more interesting every day.
With its stock share price already down about 50 percent in the past 10 days or so, the energy giant tapped about $3 billion from its available bank credit lines to build investor confidence, according to The Wall Street Journal.
Enron plans to use some of the cash to redeem about $1.85 billion in outstanding commercial paper, says the Journal. The rest of the money will be used to boost Enron’s cash position and liquidity.
In a prepared statement, the company’s new chief financial officer, Jeff McMahon, said that by drawing down the bank lines, “we are making it clear that Enron has the support of its banks and more than adequate liquidity to assure our customers that we can fulfill our commitments.”
Meanwhile, Enron is feeling pressure from the major credit rating agencies. Fitch put Enron’s debt, commercial paper and preferred stock on review for a possible downgrade. In addition, S&P changed Enron’s credit outlook to negative from stable while Moody’s has gone on record as saying that it is mulling a possible downgrade.
In a separate story, the Journal said that Enron conducted as much as hundreds of millions of dollars of business with an entity run by another company official. These deals, unlike the ones run by recently sacked CFO Andrew Fastow, were never revealed by the company, the paper adds.