Financial Executives International (FEI) presents:

26^th Annual Current Financial Reporting Issues (CFRI)

November 12-13, 2007, Marriott Marquis, New York City

Financial Executive’s editors attended the two-day conference and have distilled some key points from several of the sessions. Obviously, this is only a small part of what those who attended the conference have learned. See also "KPMG Defining Issues: FEI Financial Reporting Conference" under "Other Summaries" below. 

DAY ONE

FEI President and CEO Michael P. Cangemi opened the Current Financial Reporting Issues conference remarking that “as 2008 looms, the entire subject of accounting standards seems to be somewhat in flux. FASB and IASB are working closely with each other doing joint projects and working towards common standards, but the results aren’t yet fully discernable.”
Indeed, he added, “this uncertainty is compounding the concerns that preparers, [of financial statements] in general, have about resources.” As an example of pressure on resources, Cangemi noted, “Subject matter experts are required in many aspects of accounting – citing financial instruments, pensions, business combinations, among others.

Along with tight resources, he said, “the compliance burdens of Sarbanes-Oxley are still with us and it remains to be seen if [PCAOB’s] Auditing Standard No. 5. (AS5) will indeed present an improvement over its predecessor [AS2].”

Marsha L. Hunt, vice president and corporate controller of Cummins Inc. and the 2007conference chair, welcomed those in attendance and gave an overview of the sessions that would be presented over the next two days.

The first general session, “FASB Update,” featured FASB Chairman Robert H. Herz, IASB Vice Chairman Thomas E. Jones and Russell Golden, director Technical Application and Implementation Activities for FASB, providing updates of key issues. The session was moderated by Gary Kabureck, vice president and chief accounting officer for Xerox Corp.

One sign of what’s going on with FASB/IASB, noted Herz, is that the two organizations are giving more presentations together about shared accounting standards, as well as working on more joint projects. The duo of Herz and Jones has been speaking in the world’s major markets – about progress of reaching their “ultimate goal of a single set of high quality standards around the world.”

Globalization of capital markets, he said, is a market-driven force, and the convergence of accounting standards would support the global markets. Benefits of shared standards include: a global language for global capital markets, attracting investment through transparency, reducing the cost of capital, increasing worldwide investment and reducing costs.

He traced the steps from the 2005 “roadmap” introduced by then SEC Chief Accountant Don Nicolaisen that involved dropping the reconciliation requirement to U.S. GAAP for foreign filers, the 2006 Memorandum of Understanding (MoU), indicated milestones reached, current projects and projections.

Jones quipped, “Our job is to make sure the pain is shared equally.” Jones also discussed progress from the global perspectives and noted some areas where divisions remain, particularly those countries that have carved out sections of IFRS. On a separate, but corresponding note, Jones said he expects the SEC to approve the measure to allow foreign filers in the U.S. to file in IFRS [when it votes on November 15] and not have to reconcile to U.S. GAAP.

Although optimistic, Herz noted several sticking points: “You want principles,” he said, “but can you handle principles?” Also, the U.S. standards have been flush with rules, details and specialized industry standards. Moving to IFRS has other potential problems: funding for IASB needs to be secure and the organization made sustainable for the long run, training for people, internal systems, auditors, etc. He doesn’t endorce a “two-GAAP system,” and said standards cannot be “open-ended without an endgame, that endgame being “a single set of high-quality standards.”

Bottom line, Herz reiterated his call for a blueprint – a national plan and said he believed that in 10 years from now even stock market trading as we know it, will be obsolete.

Jones says he can see it in sight. Indeed, the night earlier as he was inducted into the Financial Executives International’s Hall of Fame at a gala at Cipriani 23^rd Street, he said it’s been his “quest for 20 years,” [for comparable accounting standards] since he had “kept the books for CitiCorp.’s business in over 100 countries.“ A single set of standards, he said, would eliminate cost, confusion and lack of comparability.

In the second general session, moderated by Lawrence J. Salva, senior vice president, chief accounting officer and controller, Comcast Corp. and former chair of FEI’s Committee on Corporate Reporting (CCR), “Usefulness and Delivery of Financial Statements Today,” three panelists provided the perspectives of preparers and investors.

Gregory Jonas, managing director of Accounting Specialists Group, Moody’s Investors Service, provided the user perspective of financial statements, saying two views are key: both the operating and financial views.

The eight themes he said were important to investors include: understand the business engine; analyze segments separately; separate core from peripheral, usual from weird; obtain a forward-looking perspective; understand management’s perspective; understand uncertainty of information and risks; compare performance; and understand changes promptly. Among what needs to be done to improve financial statements for users, he said are: areas of frequent problems, such as revenue recognition and hedging and globalization of standards and infrastructure. And, among the top tensions, he listed management perspective versus comparability and relevance versus reliability.

Jeffrey P. Mahoney, general counsel, Council of Institutional Investors addressed the influence of international standards and listed 10 investor issues with international convergence. Among them: Major gaps exist and improvements are needed; reconciliation benefits may be lost; preparers, auditors and regulators still gaining familiarity with IFRS; limited U.S. control and influence and uncertain independence of standard setting (relating to funding and government involvement).

The FASB perspective, providing an update on FASB’s Financial Statement Presentation project – a joint project with IASB – was given by FASB Board Member Donald M. Young. The project, which began in 2004, is expected to present a Preliminary Views document in the second quarter 2008. Young described the working principles and working format in detail and indicated samples documents were available for conference attendees in the hand-out book.

Salva presented the preparer perspective, noting communication mechanism, types of information, obstacles, compliance vs. clear communication and delivery mechanisms for preparers. Among the obstacles, he said, are regulatory (GAAP vs. Non GAAP), legal (furnish vs. file), competitive and tax disclosure/cost.

In the session preceding lunch, Robert C. Pozen, chairman, MFS Investment Management and chairman, SEC Advisory Committee on Improvements to Financial Reporting delivered a keynote address on the progress of his committee, known as CIFR or the Pozen Committee. Much of what Pozen said furthered the goals he outlined in the November issue of Financial Executive, Financial Reporting column, in his interview with Editor-in-Chief Jeffrey Marshall and Executive Editor Ellen M. Heffes.

Basically, he said “whatever you give investors, they want more,” and that we need to do a better job with the [U.S.] financial reporting focus. He reiterated that his committee “won’t revolutionize accounting,” but, rather, the committee is trying to come up with solutions that are practical, doable and workable.

Among some of his comments (related to the five specific CIFR subcommittees, he commented: “We need to quickly come up with our views to work on XBRL,” since the SEC is moving full-steam ahead on it. He recognizes that if the committee wants to add its input to the SEC it needs to do so quickly. He believes, in general, we need to have a significant decrease in restatements, a better roadmap for auditors, support of FASB to narrow GAAP to a few authoritative sources, replace certain bright-line rules and have better disclosure on others. He said what’s needed is ”accounting that reflects economic reality,” and favors moving from industry standards to activity-based standards.

Finally, Pozen said the committee would hold several town halls, to get feedback on the proposals it makes. In closing, he said he’s “cautiously optimistic we’ll get something done.”

–         Ellen M. Heffes

DAY TWO