BDO SEIDMAN, LLP’S October 2006 FINANCIAL REPORTING UPDATE

1. BDO SEIDMAN, LLP’SOctober 2006FINANCIAL REPORTING UPDATE

2. Speakers and Replay Information • Speakers • Jeff Lenz • Ben Neuhausen • Replay Access • www.bdo.com/about/publications/assurance

3. Agenda • SEC Update • GAAP Update • Questions and Answers

4. SEC UPDATEOctober 2006

5. SEC Update – Agenda • Rulemaking • Personnel Changes • SAB 108 – Effects of Prior Year Errors • Stock Option Accounting • Other SEC Practice Issues

6. Recent Rulemaking • Executive Compensation and Related Person Disclosure (Release 33-8732A) • http://www.sec.gov/rules/final/2006/33-8732a.pdf • Transition Questions and Answers (http://www.sec.gov/divisions/corpfin/faqs/execcompqa.pdf) • Request for Additional Comment – Release 33-8735 (http://www.sec.gov/rules/proposed/2006/33-8735.pdf) • Amendments to the Tender Offer Best-Price Rule (http://www.sec.gov/news/press/2006/2006-177.htm)

7. 404 ImplementationNext Steps – SEC • Defer compliance dates • Completed – Release 33-8730A (http://www.sec.gov/rules/final/2006/33-8730a.pdf) • Accelerated foreign private issuers • Proposed – Release 33-8731 (http://www.sec.gov/rules/proposed/2006/33-8731.pdf) • Non-accelerated filers • Newly public companies • Obtain additional feedback (Concept Release) • Issue guidance on management assessments • Work in concert with PCAOB (standard setting, inspections)

8. 404 – Compliance Dates (Proposed)

9. Rulemaking AgendaDecember 13 • Internal Control Reporting • Management reporting • Deferral for non-accelerated filers and newly public companies • Internet Availability of Proxy Materials (Release 34-52926) • http://www.sec.gov/rules/proposed/34-52926.pdf • Foreign Private Issuer Deregistration (Release 34-53020) • http://www.sec.gov/rules/proposed/34-53020.pdf • Exchange Act Rule 14a-8

10. Personnel Changes • New Chief Accountant – Conrad Hewitt • New Deputy Chief Accountant for Professional Practice – Zoe-Vonna Palmrose

11. SAB 108 – Quantifying Effects of Prior Year Errors • Topic 1-N (http://www.sec.gov/interps/account/sab108.pdf) • Effects of prior year errors on current year financial statements • Historical diversity in practice • Iron curtain vs. rollover approaches • May require significant adjustments • Transition • Restatement not required • Effective for years ending after 11/15/06

12. Assessing Errors Are the financial statements materially misstated? • Identify and quantify errors that have not been corrected (SAB 108) • Evaluate whether the effects of those errors are material (SAB 99)

13. Rollover Approach • Focuses on the income statement • Error is the amount by which the current year income is misstated May result in the accumulation of significant errors in the balance sheet

14. Iron Curtain Approach • Focuses on the magnitude of the error to the current balance sheet • If a prior year error is corrected in the current year, does not consider the current year financial statements to be misstated May not prevent significant misstatements of income

15. Alternative Approaches – Example • Improper expense accrual of $100 that has built up over 5 years at $20 per year • Rollover approach - $20 overstatement of expenses • Iron curtain approach - $100 overstatement of liabilities and expenses

16. SAB 108 – Dual Approach • Evaluate misstatements under both approaches • If the adjustment would be material under either approach the error should be corrected

17. SAB 108 – Dual Approach If you correct an error that was immaterial in prior years but is material to the current year: • Restate prior year financial statements • But no need to amend prior filings

18. SAB 108 – Transition Approaches • Restating is permitted • Restating is not required if management: • Properly applied its previous assessment approach • Considered all relevant qualitative factors in assessing previous errors • Alternative – Report cumulative effect as adjustment to opening 2006 balances (through retained earnings)

19. SAB 108 – Example Transition Entries Record cumulative catch up entry as of January 1, 2006: Dr. Liability $80 Cr. Retained earnings $80 Correct the remaining $20 misstatement as an adjustment to 2006 earnings: Dr. Liability $20 Cr. Expense $20

20. SAB 108 – Transition Disclosures • Nature and amount of each individual error being corrected • When and how each error being corrected arose • The fact that the errors had previously been considered immaterial

21. SAB 108– Adopt in an Interim Period • Not required to amend previously filed interim reports • Disclose the effect on the current period and any prior periods adjusted • If necessary, restate this year’s quarters • Quarterly data in next Form 10-K • Prior year columns in next year’s Form 10-Qs

22. SAB 108 – Adopt at Year End • Consider SAB 74 disclosures in interim financial statements • If necessary, restate this year’s quarters • Quarterly data in next Form 10-K • Prior year columns in next year’s Form 10-Qs

23. SAB 108 – Other Issues • IPOs – • Must apply dual approach if the registration statement is effective after Nov. 15, 2006 • Transition via restatement • Implementation questions • Private companies? • Interim materiality – next SAB?

24. Stock Option Accounting – Overview • Issues – • Timing practices; pricing practices • Accounting, tax, legal, internal control issues • Investigations: intentional practices, sloppy practices • Timeframe – pre-SOX • Accounting standard was APB 25 • Intrinsic value at “measurement date” • Date the number of options and price are known

25. SEC Staff Guidance September 19 letter to FEI and AICPA: • Reflects practical/common sense approach • Available at: http://www.sec.gov/info/accountants/staffletters/ fei_aicpa091906.htm • Topics largely relate to questions about whether a company’s past measurement date determinations were appropriate

26. What if there was an administrative delay in completing “required granting actions?” It depends. If the company operated: • As if the terms of the awards were not final, then measurement date did not occur until the completion of all required granting actions • As if the terms and recipients of awards were final on an earlier date, it may be appropriate to conclude that a measurement date occurred prior to the completion of all required granting actions

27. Is the grant valid? If – • The company intends to honor the awards in stock and • Reasonably concludes that it will be able to do so Then – • There is a substantive arrangement that can serve as the basis of the accounting • Can account for the awards as fixed Potential need for legal analysis

28. What if the documentation is incomplete? It depends • Don’t default to variable accounting or to treating the awards as if they had never been granted • Use all available relevant information

29. Other Questions Addressed • What if the individual grant recipients are uncertain? • What if the exercise price is set by reference to a future market price? • What if the grant is made prior to employment? • What if the options were timed to specific company announcements? • What if the options were changed due to the release of new information? • What if the incorrect exercise date was documented to reduce income taxes for the employee? • What if the Statement 123 pro forma footnote disclosure is in error?

30. Audit Implications • PCAOB Audit Practice Alert No. 1 – Matters Related to Timing and Accounting for Option Grants • http://www.pcaob.org/News_and_Events/News/2006/07-28_Release.pdf • Audit procedures depend on nature and potential magnitude of risk

31. Other Stock Option Auditing Matters • PCAOB Staff FAQ – Auditing the Fair Value of Share Options Granted to Employees • Issued October 17, 2006 • http://www.pcaobus.org/Standards/Staff_Questions_and_Answers/2006/Stock_Options.pdf

32. Other SEC Practice Issues • Cash flows classification • Non-GAAP financial measures • Restatements – Form 8-Ks

33. GAO Study – Restatements • Analyzed 1,392 restatements between July 2002 and September 2005 • Available at http://www.gao.gov/new.items/d06678.pdf • Number of companies restating financial statements rose from 3.7% to 6.8% • 17% did not file an Item 4.02 Form 8-K to report the restatement

34. GAAP Update October 2006

35. Agenda • FASB Statement Nos. 157 and 158 • FASB Staff Positions • Proposed FASB Staff Positions • EITF Consensuses • EITF Open Issues

36. FASB Statement No. 157 • Uniform definition of fair value • Guidance on measuring fair value • No expansion of areas in which fair value measurements are required • Effective for fiscal years beginning after 11/15/07

37. FASB Statement No. 157 • Guidance on measuring fair value in absence of active markets differs from: • Past accounting guidance • Typical practice of valuation specialists • Ideal is perspective of “marketplace participant” • Company-specific data a fallback • Transaction costs excluded • Blockage adjustment to market prices prohibited

38. FASB Statement No. 158 • Defined benefit pension and other postretirement benefits • Change to balance sheet display: • Fiscal years ending after 12/15/06 for companies with publicly traded equity • Fiscal years ending after 6/15/07 for others, including not-for-profits • Requirement to use year end measurement dates effective for fiscal years ending after 12/15/08

39. FASB Statement No. 158 • Today’s balance sheet shows asset or liability equal to cumulative difference between accounting expense and funding • Amount on balance sheet also equals difference between obligation and plan assets adjusted for: • Unrecognized gains and losses • Unrecognized prior service cost • Unrecognized transition obligation

40. FASB Statement No. 158 • New requirement—balance sheet asset or liability equal to difference between obligation and plan assets • PBO for pensions • APBO for other postretirement plans • Unrecognized items shown as elements of shareholders’ equity (accumulated other comprehensive income), net of income tax

41. FASB Statement No. 158 • Balance sheet gross up similar in some respects to additional minimum liability for pensions, but different because: • Measure of obligation is PBO versus ABO • All unrecognized items displayed in shareholders’ equity • Prior requirements showed unrecognized prior service cost as an intangible asset

42. FASB Statement No. 158 • Issues for first application of new balance sheet guidance: • Compliance with contractual requirements—debt covenants, bonding requirements, bidding requirements • Book value stock plans • Realizability of deferred tax assets associated with balance sheet liabilities

43. FASB Staff Positions--Final • AUG AIR-1: Accounting for Planned Major Maintenance • Accrue in advance method no longer acceptable. Defer and amortize, expense as incurred, or built-in overhaul method continue to be acceptable • New in final—also applies to quarterly financial statements • FAS 123(R)-5: Amendment of FASB Staff Position FAS 123(R)-1 • Addresses whether a modification of an instrument in connection with an equity restructuring or a business combination should be considered a modification for purposes of applying FSP FAS 123(R)-1

44. FASB Staff Positions--Final • FAS 123(R)-6: Technical Corrections

45. FASB Staff Positions--Proposed • FAS 126-a: Revision to the Definition of a Public Entity to Include an Obligor for Conduit Debt Securities—still open • EITF 00-19-b: Registration Rights Agreements • EITF 03-6-a: Whether employee stock compensation arrangements represent participating securities for EPS purposes

46. FASB Staff Positions--Proposed • FAS 141-b, 142-e, and 144-b: Transition guidance on fair value measurements until Statement 157 becomes effective

47. EITF Update SELECTED EITF ISSUES

48. Final Consensus • 06-1, Consideration paid by service provider to an intermediary rather than to a customer • Is debit revenue reduction or an expense? • Generally consistent with EITF 01-9 guidance for consideration paid to customer

49. Final Consensus • 06-4, Endorsement Split-dollar life insurance • Employer has a postretirement obligation to employee • Purchase of insurance does not settle the employer’s obligation

50. Final Consensus • 06-5, Company-owned life insurance • Asset should be measured by considering all consideration that company would receive upon surrender • Each policy should be measured individually