FLORHAM PARK, N.J., Dec. 22 /PRNewswire/ -- Financial Executives
International has identified the top 10 financial reporting challenges for
2005. These challenges will impact the way companies manage their businesses,
report their financial results, and compensate their employees.
The challenges include:
1. Stock option expensing. The Financial Accounting Standards Board
(FASB) has mandated that all stock compensation be expensed beginning
June 30, 2005 for most public companies. Smaller public companies and
private firms have until the first annual reporting period after Dec.
15, 2005.
2. Complying with Sarbanes Oxley Section 404. The requirement for
reporting on internal controls is already in place for accelerated SEC
filers with years ending after November 15, 2004, but during 2005 all
companies have to comply. Increasingly, lenders and state regulators
are asking private companies about the status of their internal
controls environment. Private companies may also see audit procedures
used by their external auditor become more "integrated" with internal
controls as the audit firms change their procedures.
3. Revenue recognition. FASB is deliberating over a new approach that
would recognize revenue in terms of changes in assets and liabilities,
rather than an earnings process. Although it may take years to effect
such a major change, it is vital that stakeholders join the debate now,
in response to the FASB's Preliminary Views being developed for issue
in the fourth quarter of 2005.
4. Assessing sustainability of tax benefits. FASB seeks to clarify
that the tax benefits recorded in an entity's tax returns must be
"probable of being sustained" before they get recorded in the financial
statements. A final statement is expected in the third quarter of 2005
following an Exposure Draft to be issued in first quarter of 2005.
5. Recording taxes on repatriated earnings. Thanks to the American
Jobs Creation Act, companies can repatriate earnings from foreign
subsidiaries into the United States at an 85% deduction through the end
of 2005. Companies who elect this option will be busy calculating
their tax liability.
6. Accounting for Business Combinations. FASB and the International
Accounting Standards Board (IASB) are expected to require major changes
to Business Combination accounting, moving towards a "fair value"
model. Among other changes, contingent assets and liabilities
associated with an acquisition would have to be recognized at fair
value at the date of the acquisition with any changes reflected in
earnings, and all acquisition-related costs paid to third parties would
have to be expensed as incurred. An Exposure Draft is expected in the
first half of 2005, with a final statement scheduled for the fourth
quarter.
7. Expensing Inventory Costs. FASB Statement 151 was issued in
November 2004 and is effective for fiscal year-ends after June 15,
2005. It defines the term "so abnormal" with respect to amounts of
idle freight, handling costs and spoilage required to be expensed
currently. The clarification makes FASB's language more consistent with
the IASB's inventory standards.
8. Disclosing off-balance sheet items. CFOs will need to comply with
the SEC's suggestions in its report due out in early 2005. It is
expected to address items such as pensions and leases among others.
9. Translating reports to XBRL. The SEC has asked companies to
voluntarily use Extensible Business Reporting Language (XBRL), a new
code designed to increase efficiency and reduce error in the electronic
communication of business and financial data, for their 2004 reporting.
Expect to see more companies following the trend in 2005.
10. MD&A Guidance. The SEC periodically provides filing companies with
guidance on making their Management Discussion and Analysis (MD&A) as
informative and transparent as possible. This year's SEC reviews also
indicate the commission's belief that the Critical Accounting Policy
notes need further clarification. Companies will have to ensure that
their disclosures of Critical Accounting Policies adequately and
clearly explain the business model.
"The continuing and collective effort to improve the clarity, consistency
and transparency of financial reporting as well as the continuing effort
towards convergence with international standards promises to keep the CFO's
job interesting and challenging in 2005," says Colleen Cunningham, President
and CEO of FEI.
About Financial Executives International
Financial Executives International, the leading advocate for the views of
corporate financial management, is a professional association of more than
15,000 CFOs, treasurers and controllers. FEI enhances member professional
development through peer networking, career management services, conferences,
publications and special reports and research. For more information, visit
the web site at http://www.fei.org.
Contact:
Edward Sweeney Chris Allen
TowersGroup FEI
(212) 354-5020 (973) 765-1058
edwardsweeney@towerspr.com callen@fei.org
SOURCE Financial Executives International
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Related links:
http://www.fei.org
Company News On-Call:
http://www.prnewswire.com/comp/310650.html
CONTACT:
Edward Sweeney of TowersGroup,
+1-212-354-5020, edwardsweeney@towerspr.com, for Financial
Executives International; Chris Allen of FEI, +1-973-765-1058,
callen@fei.org
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