107th Congress
This Congress may be remembered for enacting the Sarbanes-Oxley Act that mandates wide ranging reforms in corporate governance and in the accounting and auditing professions. Although the 107^th Congress left much undone, public and private regulatory bodies, such as the Securities and Exchange Commission and the Financial Accounting Standards Board, have been releasing proposals, rules and interpretations at a record pace.

Check Truncation
AFP has urged a House Financial Services subcommittee to make electronic images of checks the legal equivalent of original checks in order to remove the remaining legal barriers to check truncation.  In a statement submitted to the House Subcommittee on Financial Institutions and Consumer Credit, AFP pointed out that many companies receive electronic images of checks from their banks, rather than the original checks, and they continue to be uncertain about the acceptability of electronic images in a court of law.

Terrorism Insurance Coverage
President Bush signed into law the Terrorism Risk Protection Act (H.R. 3210) on November 26, ending over a year of debate. The Federal reinsurance coverage will pay 90 percent of claims resulting from future terrorist attacks in excess of specified thresholds.

Sales Tax Simplification
State delegates participating in a project to develop a simplified and uniform state sales and use tax system approved model legislation on November 12. Delegates will now lobby their state legislatures to adopt the Streamlined Sales and Use Tax Agreement. Implementation of a simplified sales tax system is considered a prerequisite for federal approval of the imposition of sales taxes on remote sellers. Currently, states can only collect sales taxes from merchants that have a substantial physical presence, or nexus, in the state.

Customer Identification Rules
The U.S. Treasury Department has delayed the announcement of final rules for financial institutions to follow in identifying customers who open new accounts.  The rules are required by the USA PATRIOT Act, and were to have been effective October 25.

Rating Agency Regulations
On November 21, Jim Kaitz, AFP's President and CEO, participated in a Securities and Exchange Commission (SEC) hearing on the role and function of credit rating agencies in the operation of the securities markets. The hearing was held to gather information for a SEC study required by the Sarbanes-Oxley Act. Kaitz conveyed the results of AFP's recent "Rating Agencies Survey: Timeliness, Accuracy and Regulation."

Bank Lending Practices
On November 4, Rep. John Dingell (D-MI) asked the General Accounting Office (GAO) to expand the issues it will examine in its update of the May 1997 GAO report, "Bank Oversight: Few Cases of Tying Have Been Detected." The request follows a response to Dingell from the Federal Reserve and Office of the Comptroller of the Currency (OCC) in which they again say that they find no evidence of illegal tying of credit decisions to the purchase of underwriting and advisory services.

FAS 133 Survey
Respondents to AFP's 2002 survey on the impact of FAS 133 on risk management practices reported a decline in hedging activity. Nearly half the respondents labeled compliance with FAS 133 as "excessively burdensome."  To help users of traditional derivative instruments prepare the documentation that will enable them to qualify for hedge accounting, AFP recently published, "Management Guide for Preparing Hedging Documentation: A FAS 133 Implementation Guide."

Federal Reserve Payments Prices
The overall level of fees to banks for Federal Reserve Bank payment services will remain relatively unchanged in 2003, increasing less than one percent from 2002, the Federal Reserve Board announced on October 31.

Accounting for Stock Options
The International Accounting Standards Board (IASB) issued draft rules that will require companies to expense the cost of stock options issued to employees. The Financial Accounting Standards Board (FASB) subsequently issued an Invitation to Comment (ITC) that  compared the IASB proposal with the FASB's rule on accounting for stock options, FAS 123 Accounting for Stock-Based Compensation, and asked for comment on the differences.

Consolidations
In a reversal of previous statements, FASB decided to push back the effective date for new rules on the consolidation of special-purpose entities (SPEs) by three months.  In a comment letter, AFP recommended that FASB delay the effective date for those companies that would violate a contractual restriction or covenant in their debt and credit agreements due to consolidation of an SPE.

Harmonization of US and International Accounting Rules
The IASB and FASB formally agreed to achieve and maintain consistent accounting rules.  The two boards identified 17 areas where differences between international and U.S. accounting standards might easily be resolved.

Principles-Based Accounting Standards
In response to recent criticism that U.S. accounting standards have become too complex, FASB issued an exposure draft that explores the possibility of issuing principles-based accounting standards. This would be a major change from its current process of issuing rules-based standards.

SEC Proposals on Corporate Governance
The SEC has proposed a series of rules to implement provisions of the Sarbanes-Oxley Act of 2002. On November 27th, AFP filed a comment letter with the SEC on several of these proposed changes. AFP recommended that the SEC follow closely the guidelines set in the Sarbanes-Oxley Act and not make companies disclose more than the Act requires.

Retirement Plan Blackouts
The Department of Labor (DOL) has issued interim final rules implementing Sarbanes-Oxley Act changes related to retirement plan blackouts. The DOL rules require that advance written notice be provided to all plan participants and beneficiaries. The SEC has proposed rules to implement the Sarbanes-Oxley Act prohibition on directors and executives from trading public company shares during retirement plan blackout periods.

Weekend Clearing and Settlement
The U.S. General Accounting Office (GAO) has released a report concluding that weekend settlement of financial transactions "would provide small benefits to retailers and consumers and little, if any, benefit to the economy as a whole."