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To: Turbo Lawyer who wrote (3965)	1/8/1999 9:41:00 AM
From: AlienTech	Respond to of 6021

This aint an accounting irregularities, its a comments letter that a lot of companies get and got. I think any company that used cash to buy and took the in processs r&d got one. Onlyt thing it means is instead of a one time charge write off you have to take it every quarter for the next 7 years.

To: Turbo Lawyer who wrote (3965)	1/8/1999 10:07:00 AM
From: AlienTech	Respond to of 6021

January 5, 1999 Mr. Arthur Levitt, Jr. Chairman Securities and Exchange Commission 450 Fifth Street, NW Room 6010 Washington, DC 20549 Re: New Accounting Rules Relating to In-Process Research & Development Dear Chairman Levitt: We are writing to express concern and extreme frustration regarding new requirements being applied by the Securities and Exchange Commission (SEC) to accounting for acquired "in-process research and development (IPR&D)." Throughout the industry, there is a resounding consensus that the SEC has been unfair in its rollout and enforcement of these new requirements. Specifically, on September 9, 1998, the Office of the Chief Accountant sent a letter (copy attached) to the chair of the SEC Regulations Committee at the American Institute of Certified Public Accountant (AICPA). In that letter, the Chief Accountant suggested several changes to the methods by which IPR&D is valued and suggested that the committee should consider them in the development of guidance for IPR&D. Since that letter was sent to the AICPA, the Chief Accountant has been applying the suggested changes, on a retroactive basis, to charges taken by software companies in prior accounting periods. The AICPA, at the suggestion made in the Chief Accountant's letter, has put together a working group composed of appraisers, auditors and accountants from industry to identify best practices in the area of IPR&D valuations. That working group is in the early stages of its work and has issued no report to date. The SEC has issued no notice of proposed rulemaking with regard to changes in the manner in which IPR&D is to be valued. The guidance that exists in the accounting literature with regard to valuation of IPR&D is decades old and does not adequately describe methods by which IPR&D might be valued. FASB Interpretation No. 4, for example, which discusses the applicability of SFAS No. 2 to purchase-method business combinations, was issued in March of 1975, prior to the birth of the software industry. This guidance clearly was not issued with software-company business combinations in mind. Even SFAS No. 86, which deals with accounting for internal software product development costs, provides minimal guidance with respect to acquired IPR&D. In the meantime, the software industry was born and has continued to grow and change at a rapid pace. The accounting profession has tried to apply the existing but outdated accounting literature to the software industry, as it felt appropriate. Firms have relied upon guidance from the accounting profession and professional appraisers in preparation of their financial statements and in structuring their transactions. We are aware of your recent efforts to curtail the practice of "earnings management" and applaud them. However, retroactive application of new rules for valuing IPR&D could require that many firms restate their earning, erode the credibility of the firms and their auditors and potential exposure to shareholder suits. We are concerned that there has been no process associated with the development of the new rules and guidance for valuing IPR&D. While we do not oppose new rules and guidance, we would hope to be involved in their development. In this instance, the new rules and guidance were issued through a letter from the Chief Accountant to the AICPA. There was no notice that new rules were coming, there was no opportunity for comment and there was no transition period. Since the issuance of the Chief Accountant's letter, there has been little in the way of follow-up with the major accounting firms and no consensus exists with regard to the specifics of the SEC's new requirements. In addition, the SEC staff has been requiring that companies apply the new rules and guidance retroactively. The SEC staff might claim that the additional guidance set forth in the September 9, 1998 letter does not represent new rules but is merely refinement of existing rules. We believe that the suggestions contained in the letter represent more than mere refinements. If the rules were clear all along, we wonder how the accounting profession, the appraisal industry and software industry financial officers uniformly have misapplied them and why an AICPA working group is needed to identify best practices for valuing acquired IPR&D. AC As stated above, we do not oppose the development of new rules. We believe that any new rules ought to be developed in the light of day with adequate opportunity for public comment and with appropriate transition provisions. The current climate fostered by the SEC has led to confusion, uncertainty and uneven application of the new rules by both issuers and auditors. This could lead to further confusion in the financial markets when the next round of financial statements is filed. At the least, we believe that the new rules (or refinements) should be applied prospectively only, to firms' next fiscal reporting period. At the most, we would hope that the guidance set forth in the Chief Accountant's September 9, 1998 letter be withdrawn and made a part of a formal rule making process in accordance with the usual administrative procedures. We are hopeful that we can work with the SEC and its staff in helping to develop revised guidance and rules for valuing IPR&D. We thank you for your consideration of this request. Sincerely yours, Mark E. Nebergall Vice President and Counsel, Finance and Tax Policy Software and Information Industry Association cc: Mr. Lynn Turner Chief Accountant Office of the Chief Accountant Securities and Exchange Commission 450 Fifth Street, NW Room 11035 Washington, DC 20549 Mr. Robert Herz Chair, AICPA SEC Regulations Committee C/o PricewaterhouseCoopers, LLP 101 Hudson Street Jersey City, NJ 07302 spa.org