E&Y issues hedging standards warning

has warned that a significant proportion of analysts and credit
ratings agencies are developing a false impression of companies because they
believe that the standards IAS 39 and FAS 133 are interchangeable.

One of the Big Four firm’s experts highlighted the ‘staggering’ number of
times that analysts believed that the two hedging regulations were the same.

Robert Aiken, a director in E&Y’s US Capital Markets Group said: ‘There
is a common view by analysts, rating agencies and other members of the community
that the application of these two standards should yield the same answer. The
amount of times I’ve heard statements such as “they are the same” or “can there
really be a GAAP difference in this area?” is staggering.’

The continuing differences are likely to disrupt efforts to harmonise
standards. IAS 39 is wider in scope than FAS 133 as it also covers the
accounting for areas such as liability de-recognition, secured assets and
accounting for marketable securities. These areas are all covered in standards
separate to FAS 133 under US GAAP, Aiken warned.

Aiken said this also presented issues for foreign private issuer preparers
and auditors alike as the identification of differences in this area can be
challenging and easily overlooked. ‘The devil really is in the detail,’ said

Some of the two standards’ objectives were the same but contained key
differences. Aiken cited fair value exemptions for Normal Purchase Normal Sale
as a prime example of a potential stumbling block.

Because of the divergence between IAS 39 and FAS 133, GAAP differences can
emerge if these contracts are not formally designated under US GAAP, or if they
contain embedded derivatives requiring separation under IAS 39.

In applying FAS 133 the contract would meet the definition of a derivative
and in order to not apply the fair value requirements, an FPI would need to
ensure that the NPSE requirements had been satisfied and also formally
designated the contract for NPSE treatment.

Under IAS 39, there is no requirement to formally designate the contract. In
addition, assuming the criteria under IAS 39 is satisfied the company would
still be required to account for any embedded derivative elements separately.

Aiken added: ‘To minimise such differences, FPIs need to ensure that their
processes and controls for formally designating such contracts under US GAAP are
sufficiently robust.’


Sainsbury’s FD’s pay packet nears £1m

Sainsbury’s FD Darren Shapland received a pay packet of £919,000 last year,
the company has disclosed in its annual report. His salary was boosted by
£300,000 from £616,000 in the previous financial year.Breakdowns showed that his
base salary of £434,000 was bolstered by a bonus of £405,000 after Sainsbury’s
improved performance. The balance was made up by a £65,000 pensions supplement
and £15,000 of benefits. The company, which found itself in the cross-hairs of
private equity heavyweights looking at a potential takeover at the end of 2006,
reported revenues of more than £17bn, up from £16bn in 2005/2006.Shapland, 40,
is one of the youngest FTSE 100 finance directors and was appointed as FD in
August 2005 after a stint as deputy chairman of Sainsbury’s Bank plc. Universal
swoops in to end Sanctuary’s woes

Sanctuary Group, the music company brought to its knees by a series of
accounting issues, has received a £44.5m bid from global music giant Universal
Music. Sanctuary still has an excellent stable of artists, such as Morrissey and
James Blunt on its books, but has warned that continuing problems with its
capital structure could hamper future profitability. For the six months up to 31
March 2007, Sanctuary recorded a loss after taxation of £6.6m, an improvement on
the previous comparable period loss of £26.7m.

WorldCom investor payouts top $500m

The Securities and Exchange Commission has announced that a cash pot
established to pay out damages has returned $500m (£254m) to WorldCom investors.
SEC Chairman Christopher Cox said: ‘The distribution of over a half-billion
dollars through the SEC’s WorldCom Fair Fund marks an important milestone in our
successful program to return money to injured investors.’

Section 308 of the Sarbanes-Oxley Act gave the SEC the ability to seek court
approval to distribute civil money penalties along with disgorgement to victims
of securities fraud. Before 2002, all civil penalties obtained by the SEC in
securities enforcement actions were deposited in the general fund of the US
Treasury. Richard C Breeden, the SEC’s distribution agent for the Fair Fund, has
said that he expects the remaining $250m of the original $750m penalty obtained
in a settlement with the company to be distributed later this year upon final
resolution by the US District Court judges of any contested claims.

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Fiona Westwood of Smith and Williamson.