We're currently holding our most popular conference - Current Financial Reporting Issues (CFRI) - here in New York City's Waldorf Astoria Hotel. There are about 600 "FEI-ers" in attendance, eager to hear a year-end update of important new FASB and SEC rules. In addition, the conference offered discussion on reporting issues related to the new economy and e-commerce. If you've never been to this conference, you really should think about attending in the future.
As I write this from the balcony of the hotel's Grand Ballroom (which, by the way, is the site of Hillary's election night gathering tonight), the SEC staff is covering their hot topics. The following are some highlights from the conference:
Interpretation #44 on APB 25
on Stock Compensation
SEC Audit Alert Letter to the
Anatomy of an Accounting
Robert expressed a high level of concern over segment reporting. Specifically, he pinpointed insufficient product line revenue disclosure and incomplete disclosure of operating segments and too much aggregation of the segment data.
The panel also observed that regardless of how the chips fall with the proposed auditor independence rules, a careful examination of any independence issues during the newly required annual review with the external auditor will be an essential part of good audit committee governance.
Keynote Speech by Frank Zarb,
Chairman of NASDAQ
Information technology has transformed the trading of securities in enormous ways, Zarb said, and NASDAQ is at the forefront of those changes. Time and again, Zarb noted that markets move quickly and hunger for information. "The market will get what it wants, when it wants it and without you," he told the FEI audience. Even today, NASDAQ and other leading exchanges could be disintermediated by new entities that give investors better information. And some pressures for information may be political, he added, since "voters are investors and want a free flow of capital."
Integrity of information is critical, Zarb said. "Tomorrow's markets will link global pools of liquidity with integrity," he said. International regulators need to work harder at harmonizing standards and enforcement, he argued, noting that little is done outside the U.S. on issues like insider trading. "Integrity is integrity - you know it when you see it."
Zarb also noted that NASDAQ is operating in Japan and is laying the groundwork in Europe, where he thinks existing exchanges are ripe for consolidation. Already, NASDAQ's Web site is getting 20 percent of its daily hits from outside the U.S. Asked about the pending FASB ruling to dismantle pooling treatment, Zarb said that no one could show him how things would be better today if pooling had been eliminated 20 years ago.
Financial Implications of
New Business Trends
It makes sense for Internet holding companies to be public, Pizzuti said, but operating entities need not be. They could be limited-liability companies or partnerships, which can provide tax advantages. Pizzuti added that goodwill issues are "enormous" for Internet companies, adding that goodwill is frequently amortized over very short periods, often as little as three years.
Mary Pat McCarthy of KPMG said that from the auditing perspective, there has been more change in the past year than any of the past 23 she has been in the accounting arena. Audit clients want more for less, adding that auditors must turn increasingly to technology to deliver more customized services - even, perhaps, "real-time" audits. In fact, McCarthy sees auditors increasingly becoming technologists, using tools like data mining, artificial intelligence and predictive modeling. She believes audits will become business process-oriented, which will help clients manage risk and leverage knowledge. Industry specialization, too, will become more important, with the days of auditors jumping from industry to industry disappearing.
Ed Jenkins, Chairman of FASB, contended that today's economy is "fundamentally different" from that of a generation ago, and that traditional reporting "doesn't capture the value drivers." Today, there is an emphasis on value creation, as opposed to value realization, a more backward-looking measure. Intangibles are more important than ever, he said, and new accounting standards may be needed to reflect them.
He also stated that cash flow reporting will continue to grow in prominence, adding that FASB is beginning to think about broad-based performance reporting. Today's delivery system for financial reporting is outdated, he added, and a more accessible electronic format is needed.
Update on FASB/AcSEC/EITF
On the business combinations/pooling issue, Lucas reiterated that FASB began re-deliberations last March and is continuing to explore related goodwill issues, as well as a non-amortization approach that would include an asset impairment test. Currently, the board has targeted a release date of March 31, 2001 for the new rule, and it would become effective in the first half of next year.
In what he called "coming attractions," issues that FASB may take on, he discussed areas such as recognition of liabilities and revenues, intangible assets and the New Economy, and performance reporting. International standardization of accounting issues is "a wild card," he said, and could affect FASB at any time.
Mark Sever, chairman of the accounting standards executive committee for the AICPA and a partner with Ernst & Young, reviewed the changes in motion picture accounting that were adopted last June. He added that AsSEC currently has projects involving areas such as real estate, lending and insurance, and a financial institutions guide that would include such wide-ranging forms as banks and credit unions, mortgage and finance companies. Sever jokingly noted that a standard on demutualization was being completed "in lightning speed" - two years.
He added that guidance on cost capitalization relating to "PPE" - property, plant and equipment - is being expanded at the request of the SEC. A key and controversial component of that, he said, is component depreciation, the idea that different components of PPE depreciate at different rates.
The Internet and E-Business:
Accounting and Reporting Issues
As you can see, there was a tremendous amount of knowledge to be shared here!
That's all for now,