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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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July 28, 2008 12:01 AM ET
Bloomberg
CEASE AND DESIST Panel chairman Robert Pozen wants FASB to mark time over mark to market.
The Committee to Improve Financial Reporting's roughly 140-page report, which may be released this Friday, will contain 25 recommendations to simplify the current accounting system. Major changes include eliminating industry-specific accounting guidance, as well as mandating the inclusion of an executive summary in corporate annual statements. Committee chairman Robert Pozen told Financial Week that none of the recommendations are intended to require congressional action, and many of them can be taken up by the Securities and Exchange Commission within the next few months, or at the very least early in the next administration. He added that SEC chairman Christopher Cox has informed him that the regulator is already moving on some of the recommendations. “Whoever is in the next commission, I believe they will continue reading this document,” Mr. Pozen said. “The recommendations are all very doable. We're trying to avoid having stillborn types of suggestions.” In fact, many of the committee's recommendations are hardly controversial. For example, it will propose that corporations be allowed to beef up their websites to include hyperlinks, executive summaries of annual reports and additional shareholder information. (The SEC on Wednesday will consider whether to publish an interpretive release to provide guidance regarding the use of company websites under the Securities and Exchange Act of 1934 and the anti-fraud provisions of federal securities laws.) But some of the committee's suggestions have already ruffled feathers. Take, for instance, the recommendations on fair value: The draft final report said the mixed-attribute model—in which some assets and liabilities are measured using fair value, while others are measured using historical cost—is complex and sometimes confusing. And yet the committee recommended that the Financial Accounting Standards Board refrain from issuing new fair-value accounting standards until the board completes other projects on measurement. It also called for a consistent presentation of amounts, grouped in operating, investing and financing sections. Several proponents of fair value have criticized the committee for not endorsing fair value and allowing for a mixed-attribute model. “We think the discussions [in the final report] will slow down the process in moving toward fair value,” said Glenn Doggett, a policy analyst at CFA Institute. Other associations contacted by Financial Week declined to comment until the final report is published. “It was one of the more difficult issues we tackled,” said Dennis Beresford, an accounting professor at the University of Georgia and member of the committee. Instead of calling for a repeal of existing fair value rules, the committee published a sample chart of how companies could break out accrual and cash items in a spreadsheet to allow investors to segment fair-value measurements. “The key is to show the investor what the different components of income are,” he said. Also controversial is the committee's recommendation that companies will no longer have to restate financial reports so long as the accounting errors are not material. Groups including the AFL-CIO and the Consumer Federation of America voiced concerns that this move would allow companies to obscure or ignore past errors. Such critics also have pointed to a statement suggesting that even quantitatively large errors could be considered qualitatively small, and therefore wouldn't warrant restatement. Jeff Mahoney, general counsel at the Council for Institutional Investors, wrote in a comment letter last week that “there is a perception by some in the investment community that many of the committee's draft recommendations are largely in response to concerns that have been raised by preparers or auditors and do not address the concerns of investors.” Mr. Mahoney singled out the restatements recommendation as one that could arguably hurt investors. Mr. Pozen countered that the updated proposal will lead to companies correcting and disclosing more errors than they currently do without requiring restatements for past errors on non-cash items that aren't important to investors. He further explained that “it would be unlikely for a large error to be deemed immaterial because of qualitative factors,” but even in that event the company would still have to correct it and disclose the error to investors. The committee was created last year by SEC chairman Christopher Cox to address what he saw as the growing complexity of financial statements and accounting standards. Mr. Pozen, who serves as chairman of MFS Investment Management and was formerly a vice president at Fidelity Investments, was named committee chairman. Members of top accounting firms, think tanks and law schools were appointed to the 17-member committee. One of the committee's recommendations—that the SEC mandate XBRL usage among public companies—has already been proposed by the SEC. The committee has one final vote on recommendations this Thursday, after which it will release its final report.
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