FEI Members and Prospective Members
Greetings! I'm writing this edition of FEI Express from Frankfurt,
Germany, where the FASB and Ed Jenkins were generous enough to include me in
their conference program for European SEC registrants. It was great exposure
for FEI. I gave a talk on the earnings management issue in the U.S. (see
below). It was an outstanding program with about 275 participants from all over
Europe. I've attempted to capture the highlights for you.
I spent some time here as a young child. My dad worked for the
military here in a civilian capacity while we lived in the city. It was fun to
visit Frankfurt again. I ventured to Heidelberg and the Rhine Valley on
Saturday after the conference, and they were both beautiful and stimulating
environments. Had the great pleasure to dine with Felix Liermann, of Germany's
FEI, and Helmut Schnabel, long active in IAFEI, formerly of Hoerscht, and today
a member of the board of management of the company managing the assets of the
Hoerscht pension plan. Helmut is a wine connoisseur of the highest caliber!
At the conference, I took some questions about our forthcoming
statement on best practices in earnings press releases. Some of the SEC
representatives at the conference applauded our CCR committee for addressing
the issue. We expect that policy to completed and issued shortly, and we will
post it on the web site and alert you to it.
Life in and around FEI continues to be fast and furious. I hope
the following is useful to you.
Recently, we had our annual joint meeting of the FEI
Executive Committee and the FASB. The top issues that we discussed (reflecting
our priorities) with the Board included the following:
- FASB Standard-Setting Process and Standards Overload. Mickey
Alpert and Phil Ameen led the charge on this issue, but many at the table
weighed in, feeling strongly that the standards are becoming too complicated to
- Business Combination Project.
- The Liabilities and Equity Project. Bob Laux of Microsoft led
the charge here, noting that under the proposal, companies that sell put
options on their own stock (to decrease the cost of stock buyback programs)
would have to record those options as liabilities and record gains or losses in
the income statement. This procedure is contrary to the long-held accounting
policy that companies should not record gains or losses on transactions
involving their own stock.
- International Convergence. Tony Cope from the FASB and John
Jessup from the CCR led the discussion.
There was a slew of standard-setters at this important
European conference. Jim Leisenring, Tony Cope and Gary Mueller were all
presenters. Ed Jenkins chaired the two-day program. Sir David Tweedie also
delivered a major speech as part of the program. This is the third year of this
conference. I highly recommend the conference to our European readers.
Highlights from some notable speakers are recorded below.
- Commissioner Isaac Hunt of the SEC. The Commissioner
stated that the SEC's most important advances have been in the area of
accounting rulemaking. He argued that the SEC has NOT been too aggressive in
He expressed support for the new FASB Business Combination
Proposal and its non-amortization of goodwill, but NOT for the proposed
impairment testing and measurement methodology. SEC Chief Accountant Lynn
Turner expressed the same view. For the first time, I detect the possibility of
delay in this proposal (hopefully, I am wrong).
The audience asked the Commissioner about future enforcement
of IASB standards. Hunt acknowledged that it is a problem and no enforcement
mechanism exists. He also indicated that there is currently no clear solution.
The audience also suggested global convergence of stock
exchange listing standards. Hunt indicated that he could see that convergence
in the future, but probably not soon. He noted that International Organization
of Securities Commissions (IOSCO), the body that includes all the securities
exchange regulators from around the world, was not close to producing
convergence in listing standards with the regulators nor at the stock
- Heinz-Joachim Neubuerger, CFO of Siemens AG and a member of
FEI. Heinz discussed the process of how Siemens recently converted to U.S.
GAAP. It took three years from initial planning to implementation and
conversion to full U.S. GAAP, and Siemens re-trained 15,000 people. Its annual
report expanded by 30% as a result of the changed requirements. Siemens is now
listed on the NYSE. It has introduced a full-fledged half-year financial report
and may go to quarterly reporting. Siemens also has voluntarily adopted
On the subject of financial reporting issues, Heinz complained
at length about FAS 133. He said it was impractical and imposes an incredible
need for documentation. He questioned the value of it at all. Even with the
best efforts and intentions of management teams to implement 133, he doubts the
process is worthwhile. He indicated that he supports expensing stock options to
employees citing the oft-used quote: "If it's not compensation, what is it?" He
talked about the inconsistency of local laws that require national auditors and
how that inconsistency affects global markets and the EU. Overall, he believes
that one auditor across all countries should be adequate.
Furthermore, Heinz expressed concern about standards overload.
He thinks the financial statements are not written with a reader/user in mind.
There is too much information, the statements are too technical, and they are
too different, given the local legal and tax environments. He also expressed
concern that U.S. GAAP is overly influenced by home country companies (somewhat
due to the lack of comments from international companies).
Siemens faces the challenge that in 2005, all EU companies
must report on the basis of International Accounting Standards. Having just
converted to U.S. GAAP, the company may have to reconcile to IASB in 2005. He
encouraged the standard setters to adopt one set of standards between the U.S.
- Abby Joseph Cohen of Goldman Sachs. Abby spoke about the
importance of high-quality financial statements to further the development of
global capital flow. She commented on how global companies impact the process
of merging the world economies into one massive, interrelated market.
Essentially, good accounting practices can change the way management teams act.
She thought that U.S. accounting standards still emphasize
substance over form. But, she applauded the FASB's listening posture.
- Bob Herz of PWC. Bob, a new part-time member of the
IASB, talked about the challenges of getting AUDITS up to high standards across
all borders. This challenge is similar to the accounting standards convergence
task. The efforts by auditors center around strengthening the International
Federation of Accountants (IFAC) and initiating global peer review programs.
These programs are to be put in place, as well as a compliance committee of
IFAC, to determine whether the local accounting institutes have implemented the
IFAC ethical and auditing standards. There are 25 global auditing firms that
audit transnational companies. They audit about 90% of the market cap of public
- Lynn Turner, Chief Accountant of the SEC. In his third
year in a row presenting at the conference, Turner expressed his concern about
the new rules on accounting for goodwill. Specifically, the impairment testing
methodology is a concern. He indicated that the FASB should look at the UK
Accounting Standard 11 as to its method of dealing with impaired goodwill.
Turner gave his recommended list of initial projects for the
new IASB. Namely, business combinations, financial instruments, leasing,
restructuring, pension accounting and fair value accounting. He congratulated
Sir David Tweedie and emphasized the importance of the new IASB's
- Charles Niemierer of the SEC's Enforcement Division.
Niemierer talked about the SEC's current points of concern. In particular, he
discussed pro forma earnings "where companies report earnings before all the
bad stuff." In his opinion, the stock market and stock options continue to put
excessive short-term pressure on management teams. Revenue accounting is
involved in more than 50% of the enforcement cases they handle.
- Jack Ciesielski (publisher of the Analyst's Accounting
Observer) and I gave presentations on the earnings management issue. I
spoke from the corporate viewpoint and Jack from the analysts perspective. My
presentation can be found on our web site by
clicking here. I focused on
the operational methods of earnings management, and the areas that have caused
financial reporting abuses in the past.
Note: The views above are obviously
the views of the speakers. I attempted to represent their views as objectively
Reform Legislation Introduced
On March 14, Congressmen Portman and
Cardin reintroduced popular pension reform legislation that overwhelmingly
passed the House during the 106th Congress. The bill, HR 10, would among other
things: 1) Increase the annual contribution limits for IRA's to $5,000; 2)
Increase the annual contribution limits for 401(k) plans to $15,000; 3) Modify
and redefine top-heavy rules; 4) Relax rules making it easier for small
employers to offer pension plans; and 5) Increase pension portability. FEI is
working with leaders in Congress to include HR 10 in one of the tax bills to be
considered by the House in the coming days.
Click here to show
your support for the Portman/Cardin legislation.
Board Opportunity with
The Institute of Internal Auditors is seeking a CFO interested in
becoming a member of its Internal Auditing Standards Board. This board meets
approximately four times a year to develop exposure drafts on proposed
standards for internal auditing. The normal term of office is 3 years, and the
CFO would ideally come from a company with an active internal audit
organization. If you would like to be considered for nomination, please send
your resume to Dean Krogman of FEI at email@example.com.
The Duke Fuqua School/ FEI Economic survey received some great
press on CNBC last week. Thanks to all of you that participated. You really
helped FEI, and the survey was widely cited in the press, including articles in
the April 9 edition of the WSJ, pg. A1, A12. I hope that more of you will
complete the survey if you receive it by fax!!! Here is a link to the video of
Professor John Graham of Fuqua describing the
Don't miss our May 2 teleconference with Robert
Bayless, Chief Accountant of the Division of Corporate Finance. He will give
FEI members an update on the pressing topics in 10K reviews. The SEC is trying
to review one out of four company filings in upcoming years. With the IPO
market cooling off, Corp Fin wants to review more routine filings for
compliance with existing rules. Segment reporting is clearly a hot button and
Robert will give us his view of problems in segment reporting. NOTE: We have
instituted new international dial-in numbers, so select international readers
and members may join these calls. There is no charge, but you pay for your own
phone minutes (no toll-free number). Register here.
Be sure to check out these upcoming teleconference
events as well:
- The Kinesthetic Speaker: Putting Words into Action/ How Leaders
Motivate People to Act on Their Vision: Tuesday, April 10 at 2:00 p.m. EDT/
11:00 a.m. PDT
- Networking for Success: Moderated by John Gillespie of
CFOutsource LLC. Wednesday, April 11 at 12:00 p.m. EDT/ 9:00 a.m. PDT
- Corporate Governance and the Board: What Works Best. The
discussion will be led by Richard M. Steinberg, a senior partner at
PricewaterhouseCoopers LLP. Tuesday, April 17 at 1:00 p.m. EDT/ 10:00 a.m.
- Learn What You Need to Lead: The Key to Financial Leadership
Success through Leverage Competencies. Sponsored by the FEI Research
Foundation. Friday, April 20th at 12:00 p.m. EDT/9:00 a.m. PDT
Sign up today for these
New Share Buyback Model
Bruce Valentine has updated his popular share buyback model
to include the case of non-leveraged buybacks.
Here's a link to the
We just published our first e-newsletter, Global
Update, focused on International financial matters. I think it's outstanding
and enlightening. Check it
I'm speaking at this program June 4-5. It is a top quality
program for corporate directors. If you are interested in attending, please
contact Janice Vaughn at firstname.lastname@example.org.
She will provide you with a brochure.
On this trip, I was able to get some quality reading done.
One incredible story that I recommend to you if you have some time is from the
current issue of the New Yorker. I'm not making any statement about the
politics or opinions of the story. I do tell you it is one of those pieces that
is so well-written, it totally engrosses you. It is the story of a single mom
in Washington, D.C. raising three kids on her own. Find it in the April 9
edition, p. 92. Written by Katherine Boo, the article is titled "About
Making Enterprise Risk
Management Pay Off
Risk management is currently a hot topic over at
the FEI Research Foundation. Last month, the Research
Foundation released Making Enterprise Risk Management Pay Off.
Written by Thomas L. Barton, William G. Shenkir and Paul L. Walker, the book
reports how five companies identify risk and implement enterprise-wide risk
management strategies. Additional ordering
information is located on our website.
Next on the Research Foundation's risk agenda is a survey prepared
by the Research Foundation and Andersen LLP that is intended to obtain input on
your company's approach to risk management. James W. DeLoach Jr. will use the
results of this survey in his presentation "Enterprise-wide Risk Management
as a Strategic Weapon," on May 7 at the Financial Executives Summit. In the
next few days, members will receive, via e-mail, a survey prepared by the
Research Foundation and Andersen LLP, intended to get your input on how your
company approaches risk management. Please take the time to complete this
valuable survey. For more information on the conference,
visit our website.
FEI's Research Foundation
Later this month, the Research Foundation
will debut TechKnowledge, a monthly electronic newsletter that will
report on new IT products and services, trends in IT services and feature
interviews with financial executives who have recently implemented new
programs. You can sign up for the
Assurance: Board and Management Solutions Conference
May 15, U.S.
Chamber of Commerce, Washington, D.C.
Join corporate board members, executive management, chief
financial officers, chief audit executives, and chief information officers as
they discuss the challenges of managing information security risks effectively.
The conference will address what information security assurance means to an
organization and its stakeholders and how executive management and auditors
determine how much security is enough. For more information, please visit
IIA's web site.
Will be held May 16-18 in San Francisco. The conference will
focus on treasurers in the new millennium, and the speakers and panels will
emphasize current issues revolving around technology and treasurers. This is
your opportunity to get up to speed on a variety of topics and learn from
fellow treasurers without vendors or other outsiders being present.
for this unique opportunity.
Need FEI merchandise? Be sure to
visit Ashford.com, where
you will find new logo products for you to use for speaker gifts, to say thank
you, or for your own use.
Don't Forget to Send in Your
Please help us reach our quorum on the election of the
board of directors by sending in your vote! Contact Barbara Chanes via e-mail
at email@example.com if you have any
Job Posting- Chief
(FEI Job #5268) - Private oil company in
Michigan seeks a Chief Administrative Officer who will be responsible for the
overall administrative functions of the organization. The broader experience an
individual brings to this position, the broader his/her responsibilities will
be. Responsibilities include accounting, billing, development of annual
operating plans and budgets, risk management, facilities, etc. Additional
responsibilities could include other functional areas, e.g. human resources,
information systems, legal, cash management, etc. This individual will be
focused on ensuring effective, timely, responsive, and efficient administrative
operations throughout the organization. He/she will be asked to improve all
administrative procedures and processes to improve customer satisfaction while
supporting the organization to grow revenues and improve profitability. Please
Barbara Swan, Research Director, Sullivan Associates
344 N. Old
Woodward, Suite 304,
Birmingham, MI, 48009.
Phone: 248-258-0616, Fax:
To view other jobs, please visit the FEI Career Center.
Congratulations to Judy Curry, controller, Tupperware Corp.,
Orlando, and Michael Rose, vice president and controller, Hewlett-Packard
Corp., Santa Clara, CA.
Presentation Coming Up
Dennis Powell, Cisco Systems' Controller, is
speaking at our Portland Chapter on April 19. This will be a great opportunity
to attend and learn about this high-profile organization. For more information
on our Portland Chapter or this event, click here.
That's all for now,
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