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. . . I. ~. ~ . . I. . . . . I. :. . i. I. i. . . . i. . ;. . . i. . . . . . . . . . . . . . . . I. . . . . . . . . . . . . NOTE 1. Sf/MAURY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) BERl'tfELLO, AJAIVrIL & PARTNERS, INC. NOTES TO FINANCiAL STA TE~'TS DECEMBER 31, 2005 AND 2004 Guarantor's Accountin.g anti Disclosure Requirement for Guarantees In November 2002, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, an interpretation of FASB Statements No.5, 57 and 107 and a rescission of FASB InteJpretafion No. 34, This Interpretation elaborates on tbe disclosures to be made by a guarantor in its interim and aIll-lual finaricial statements about its obligations under guarantees issued. The Interpretation also clarifies that a guarantor is required to recognize, at inception ofa guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions of the Interpretation are applicable to guarantees issued or modified after December 31, 2002, The disclosure requirements are effective for financial statements of interim and annual periods ending after December 15, 2002. Management has adopted Interpretation No, 45 on the Company's financial statements, Recently Issued Accounting Standards In December 2003, the F ASB issued FASB Interpretation No, 46 (revised December 2003), Consolidation of Variable Interest Entities, which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. The Company applies FIN 46R to variable interests in VIEs created after December 31, 2003. For variable interests in VIEs created before January 1, 2004, the Interpretation is applicable DO later than the beginning of the first annual reporting period beginning after December 15, 2004, For any VIEs that must be consolidated under FIN 46R that were created before January 1, 2004, the assets, liabilities and noncontrolling interests of the VIE initially would be measured at their carrying amounts with any difference between the net amount added to the bal311Ce sheet and any previously recognized interest being recognized as the cumulative effect of an accounting change, If cletennining the carrying amounts is not practicable, fair value at the date FIN 46R first applies may be used to measure the assets, liabilities and noncontroHing interest of the VIE, The adoption of FfN 46R did not have an affect on the Comp311Y's financial statements. In May 2005, the FASB issued FASB Statement No, 154, "Accounting Changes and Error Corrections". Statement 154 establishes, unless impracticable, retrospective app1ication as the required method for reporting a change in ilccounting principle in the absence of explicit transition requirements specific to a newly adopted accounting principle. This statement will be effective for the Company for all accounting changes and any error corrections occurring after January], 2006, Management believes that adoption of SF AS No, ] 54 will not have an. effect on the Company's financial statements. -9-