Archives For FASB

The big picture fades

aksaroya —  28 January 2013 — Leave a comment

By Romano Dzinkowski, economist and business journalist

2012 brought CFOs in the US so much to get to grips with on financial standards and mandatory auditor rotation that precious little headspace was left for strategic direction of business.

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2012 was a tough year for US corporate accountants. With heads down, eyes focused on managing risk, and more often than not buried in compliance and tax issues, there was little room for strategic growth for the finance C-suite. While most CFOs would claim their role is to be a true business partner and a critical forward-looking thinker on the C-level team, last year was full of distractions.

First, the US Financial Accounting Standards Board (FASB) issued up to 15 new exposure drafts (13 at the time of this writing) and seven freshly linked new standards. CFOs were also anxiously awaiting the final revisions to several big memorandum of understanding projects with the FASB and International Accounting Standards Board (IASB) – on financial instruments, impairment, hedge accounting, accounting for macro hedging, leases, and, last but not least, revenue recognition. Many finance folks were busy figuring out exactly what the proposals would mean for them.

Also on the standards agenda, the FASB and newly formed Private Company Council (PCC) proposed a new, simplified framework for modifying US GAAP for private companies. There was much debate on whether what many are calling a two-GAAP system would ultimately be good for corporate America as a whole. That argument continues.

Also in 2012, the coming of International Financial Reporting Standards (IFRS) was again a source of confusion for public company CFOs who would have liked some direction one way or another. An announcement regarding adoption (or not) was expected at the end of 2011, and again in 2012…but none was forthcoming. This has angered many US finance chiefs who would like a heads-up for their planning cycle and have already started going down the IFRS adoption path.

Against the backdrop of a fairly heavy accounting standards agenda came the threat of mandatory auditor rotation in the US, which many CFOs say would make their life much more complicated, not to mention expensive. The Public Company Accounting Oversight Board is now deliberating on what, if anything, it is going to do about changing the rules on mandatory auditor rotation in 2013. Currently, most votes are in the nay camp.

At the same time, COSO – the Committee of Sponsoring Organisations of the Treadway Commission – released a significant update to its original risk management framework, which many SOX 404 filers have adopted. The new model has been criticised for being prohibitively large for all but the bigger public companies with the resources to adopt it. COSO is revising the document; the hope is that the new framework will be ready for CFOs to start implementing in 2013.

So what does it all foreshadow for the role of the CFO this year and beyond? More of the same, says a recent ACCA/IMA study released in October 2012. CFOs, predicts the study, will continue to be challenged by the tug of war between their role as senior strategist and business partner and the ever-increasing demands of greater compliance,control and regulatory complexity.

This post first appeared in Accounting and Business International, January 2013.

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tall building, modern CFOBy Jeffrey C. Thomson, CMA; President and CEO, IMA

According to The Changing Role of the CFO, a new report co-published by ACCA and IMA®, CFOs will face many challenges in the future, including global economic uncertainty and volatility, fluctuating energy prices, and turbulent currency markets, along with a shift in economic power. The report identifies emerging priorities that will impact the future role of the CFO and cites nine future key issues that will shape the finance function’s top job, including regulation, globalisation, technology, risk management, transforming finance, stakeholder engagement, strategy, integrated reporting, and talent.

Of course, these emerging priorities could well vary by global region depending on regulation, socio-economic factors, environmental conditions, culture, and more. But as a former U.S.-based CFO, I wonder if we in the U.S. face a couple of unique challenges associated with regulatory uncertainty and litigation. These issues exacerbate the ‘day-to-day’ challenges – and opportunities – of today’s CFO team.

First, let me tee up the uncertainty associated with regulation. Usually, when we discuss the CFO team’s lead role in dealing with uncertainty and disruption, it is in connection with consumers and competition, not regulation since that tends to be a ‘known’ quantity with exposure drafts, comments letters, discussion roundtables etc. before a regulation associated with financial reporting even goes into effect. Specifically, I am focusing on the uncertainty associated with adoption of IFRS in the U.S. Will the U.S. adopt IFRS? If not in full, what would an ‘incorporation’ model look like? The larger questions are around the degree to which U.S.-based CFO teams should begin the training process and technology changes necessary to affect a massive shift from the decades-old US GAAP. This is not the resource allocation challenge that CFOs deal with every day in trading off returns on various investments; it is a long-term decision to invest in training and technology without clarity as to ‘if, how and when.’

Smart CFOs will need to do two things: (1) Hire and nurture good technical talent, so adopting to any deviation to pure-play GAAP will be that much easier; and, (2) Stay close to the regulatory scene and be a proactive advocate for the best solution (e.g., SEC, FASB, IASB, IFRS Foundation, etc.)

The second, arguably unique challenge for U.S.-based CFOs is with integrated reporting, or, the evolution of external corporate reporting. At least in the U.S., the external disclosures are voluminous and yet do not adequately inform stakeholders as to long-term sustainable value generation and growth because they are too financially focused, too complicated, and yet not comprehensive enough. But the unique challenge in the U.S. is not so much about selecting more non-financial measures, or measures more of a leading indicator variety, or even how to source and report measures such as employee learning and growth, process improvements, sustainability, carbon footprint, societal contributions, or governance factors. It is the litigious nature of society and an often ‘unforgiving’ regulatory environment in the U.S. If this challenge is approached as ‘let’s report everything – and thus subject it to internal controls and audit – because it may be useful to some stakeholder in the future,’ then much like in the early days of Sarbanes-Oxley, integrated reporting will be viewed as a ‘social tax’ with little societal good and expensive shackles placed on corporate entities. There are no easy answers here, but leading CFOs need to be at the table to find the right balance, rather than waiting for the steam-roll effect of transforming external corporate reporting ‘to just happen.’

What do you think?

By Richard Martin, head of financial reporting, ACCA

Bob Herz, chair of the US' Financial Accounting Standards Board (FASB), has announced – as I'm sure you've noticed – that he's to retire from the role early. With the IASB's chair, Sir David Tweedie, stepping down next year, it's suddenly 'all change' at the top of the key accounting standards bodies.

Rachel Sanderson in today's FT (£) sees the departures as an opportunity for the accounting profession. I'm not so sure we can call the long-term impact of the departures just yet; Herz's departure in particular raises more questions than answers:

  • Why has Herz left now? It's not the best timing, given the IASB and FASB are both engaged in a major push to try and get a whole series of converged standards agreed to according to a programme endorsed by both the SEC and G20.
  • Is it connected to the FASB Financial Instruments Exposure Draft, which has been less than warmly received in the US and is also divergent from the IASB position? Bob Herz voted in favour of it, but his temporary replacement, Leslie Seidman, voted against.
  • The SEC is meant to be getting closer to a decision on whether to adopt IFRS. Do the changes – particularly the decision to increase the size of the FASB board from 5 to 7 – indicate that the SEC is going to give a 'no' to IFRS, meaning FASB will be needed for longer? After all, the 5 member board (reduced from 7) seemed to be too small and perhaps too dependent on the individuals involved, and was split on some key issues.
  • What does this mean for the current convergence programme? I suspect this will be delayed further.
  • Who replaces Herz and Tweedie? There's an issue in recruiting high quality individuals to boards, and to these roles in particular. There have been suggestions that the search for Tweedie's replacement has been bedevilled by problems; for the FASB role these problems will be even greater given the degree of uncertainty over the longer term future of the organisation.
  • And where next for Herz? He was after all once spoken of as a possible successor to David Tweedie…

Update: There's an interview with Leslie Seidman over on WebCPA

 

Playing catch-up

accawebmaster —  6 August 2010 — Leave a comment

by Helen Brand, chief executive, ACCA

If you missed the Global Virtual Conference at the end of last month, then you missed a couple of gems. Don’t worry though – the sessions are still available to view on demand.

One of my personal highlights was the interview with Professor Mervyn King. Professor King has a rather intimidating CV (Judge, South African Supreme Court Counsel, holder of numerous professorships, chairs, and directorships) and has had an almost unparalleled impact on corporate governance. He is the eponymous King of Kings I, II, and III. I thoroughly recommend you give his interview a look when you have the time.

One of Professor King’s current passions is the area of sustainability reporting (King is the chair of the Global Reporting Initiative), which is an area that ACCA takes a keen interest in too.

Sustainability matters, whether we like it or not. Even when the ramifications of the financial crisis die down, we’ll be left with the climate change crisis. According to the Global Footprint Network, 1.4 planet earths are needed to sustain the current population.

Everyone has responsibilities when it comes to combating climate change, and businesses are no different. In fact, given that enterprise is such a vast consumer of the world’s resources, you could argue that businesses had a bigger responsibility than others – many multinationals have bigger economies than some countries.

The key thing with responsibility is accountability. Businesses have long been required to report their financial activity to stakeholders in their annual reviews, but now sustainability reporting has to catch up.

There needs to be a universal standard that requires businesses to report in clear language the impact their activity has on the environment. Stakeholders need to be able to use the information to compare and contrast the sustainability performance of companies, just as they do with financial information.

As Professor King said in his interview, companies know their stakeholders and shareholders want this information and they want to give it to them, but the lack of clarity in the sustainability reporting requirements leads to caution and confusion.

Moving towards a clear and consistent method for businesses to report their sustainability impacts is the goal of the newly formed International Integrated Reporting Committee (IIRC), set up by the GRI and the Prince of Wales’ Accounting for Sustainability project (A4S). It’s a personal honour for me that I’ve been asked to sit on the steering committee of the IIRC, alongside representatives from (among others) the Big Four, IFAC, FASB, the IASB, and several multinational businesses.

United and focused action on sustainability is the answer. I’ll keep you posted.


by Cecile Bonino, ACCA Brussels office

Since the financial crisis, the banking sector has been affected by issues linked to accounting policies and standards. These include challenges associated with fair value accounting, pro-cyclicality and comparability of numbers, as well as performance in financial reports.

It is reassuring that after the G20 request to international standard setters in April 2009 to clarify accounting rules, many of the issues raised have started to be addressed, but it is too soon to be complacent.

The European Union adopted the IFRS standards, including IAS39 – the standard on the recognition and measurement of financial instruments – as part of the move to IFRS by listed companies from 2005.

In 2009, the IASB published the first part of IFRS 9, a new standard to replace IAS 39. This still provides for a 'mixed model' – that is some financial assets to be shown at historical cost and some to be at fair value – but a simpler version. However, IFRS 9 has been seen by some to place too much emphasis upon valuing assets based on market prices.

IASB has also published a proposal for loan loss and other impairments of debts when at historical cost, while proposals are still expected later this year on the measurement of liabilities and on hedge accounting.

The adoption of IFRS 9 by Europe is clearly a crucial question for the future of the IFRS framework as a whole. In this context, a recent roundtable in Brussels organised by ACCA and Barclays – entitled New IFRS 9: Reporting of financial instruments made simpler? – considered if the new standard will align sufficiently financial reporting with the business model and, should this be the case, what still needs to be done.

The European Commission has decided to put a hold on transposing the rule into Community law until the remaining sections of IFRS 9 are released, urging the IASB to strike the right balance between the two different accounting models, the reporting assets at fair value (market prices) and (amortised) cost price.

There is no sign so far of an early endorsement; the whole process will take longer than expected, especially since the IFRS 9 proposals are a part of an even bigger set of expected changes.

Even though no major disagreement among stakeholders exists on the direction standards should be changed, there are still many details to be completed. Improvements have been achieved but the seriousness of the remaining concerns might be a further obstacle. In addition, on the convergence issue, no firm proposals have yet been published by FASB, the US standard setter in this regard, though the body's deliberations have favoured a model where most financial instruments would be at fair value. This is expected to lead to further difficulties.