CFO welcomes your letters. Send them to: The Editor, CFO, 253 Summer St., Boston, MA 02210
E-mail us at JuliaHomer@cfo.com. You can also contact a specific author by clicking on his or her byline at the beginning of any article.
Please include your full name, title, company name, address, and telephone number. Letters are subject to editing for clarity and length.
No wonder auditors are building up their consulting practices again. The current situation and pricing strength will not last, and then they will be left with just a lot of low-value, rubber-stamp relationships.
"Fractured Fraternity" (September) describes the change in the management-auditor relationship as if it's primarily a negative development. While I understand that some financial executives long for the days when the auditor was a counselor and adviser, it's not clear to me that auditors ever should have filled such a role. The audit opinion states, "These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits." The intended division of labor is very clear: management is to prepare the financials, and the auditor is to test management's financials.
I believe that we ended up with the auditor as an adviser/counselor due to confusion about the identity of the client. If the client is management, then advising and counseling are appropriate. However, the Sarbanes-Oxley Act reinforces the notion that the audit committee/board is the client — and that ultimately, the financial-statements users are the clients. As a result, I believe that a more formal relationship between management and the auditor is quite healthy.
Dana R. Hermanson
Dinos Eminent Scholar Chair of Private Enterprise and Professor of Accounting
Kennesaw State University
A New Definition of "Assets"?
Tim Reason's article on lease accounting, "Hidden in Plain Sight" (August), was a good summary of the issues. I found it sadly humorous that Securities and Exchange Commission staffers themselves complained that companies were "taking advantage of the bright-line nature of the [FASB leasing] standards" to structure off-balance-sheet transactions.
Really now, shouldn't standards be clear, concise, and easy to apply? If the SEC, the Financial Accounting Standards Board, or the International Accounting Standards Board wants to improve lease accounting and reflect economic reality, then any new standards need to: (a) provide unification to the Uniform Commercial Code in regards to the definition of sales and lease transactions; (b) acknowledge and build in aspects of legal title possession (by country or U.S. state) and the benefits and obligations surrounding ownership; and (c) be clear and easy to understand, and have a consistent application formula with very little room for subjective inputs.
Finally, if FASB chairman Robert Herz really believes that all money payments relating to an asset that you "can't get out of" need to be on the balance sheet, then there are plenty of other company obligations that the SEC, FASB, and the IASB should start requiring to be on it as well. Remember, it wasn't the leasing of personal or real property that brought down Enron, Global Crossing, or MCI. Maybe we need to change the definition of an "asset."
I don't disagree that lease accounting may need an overhaul, but obfuscating the standards or formula procedures isn't the answer.
Vice President for Finance
Science Applications International Corp.
In a letter in your August issue ("True Independence"), Butler University professor Arun Khanna stated, "Sarbanes-Oxley requires public companies to beef up their independent directors." He then opines that there is "no reliable way to identify independent directors." Not to be deterred by such a truism, Professor Khanna proposes a neat solution: "Directors that have voted differently from the CEO in the past can be characterized as independent directors: others are simply nonexecutive directors."
Brilliant! Such criteria should make selection of directors a snap. Forget whether the CEO might have been right. Simply give candidates a list of past CEO decisions. Presumably, disagreeing with all of them would make one a genuine, first-class, independent board member. It would also preclude the need to actually review the quality of CEO decisions.
Two disconcerting thoughts: the Securities and Exchange Commission, always looking for meat-ax rules, might actually say, "Good thinking, Professor," or perhaps Professor Khanna's students might, heaven forbid, apply his black-and-white rationale to real strategic planning.
Would that the world of directors' decision-making were amenable to such simplistic choices. Professor, for shame.
Abrams Moran & Associates
A Big Hole in This Doughnut
Great article about the once king of doughnuts ("Kremed!" June). When Krispy Kreme first came to my city (Rochester, New York), you'd have thought it was giving those doughnuts away. There were lines into the early morning hours. That lasted about two months, and then it was just another doughnut shop. In planning to grow the company like a forest fire, Krispy Kreme purchased a local bread company, Montana Mills. The sad part is that shortly after buying it, Krispy Kreme started to take apart this company that had done well, added local employment, and served the community well for more than five years. Not only did Krispy Kreme destroy itself, but in its greed to smother the little guy, it shot itself in the foot, too. So much for great talent and big bucks at the top, to say nothing of pitching from the cash box on the way down. Wonder why the average investor has lost faith in big business?
Your article on shareholders' proposals regarding corporations' political donations ("Lawyers, Nuns, and Money," Newswatch, June) fails to discuss the interlocking of compensation-committee board members who then become political candidates and receive donations from the executives whose compensation they have determined.
One example is Peter Coors, who is a director of H.J. Heinz Co. and U.S. Bancorp, and received maximum donations from the CEOs of each of those companies for his U.S. Senate campaign. Interestingly enough, he also received maximum donations from the unemployed spouses of the CEOs.
At the U.S. Bancorp meeting, I noted that this could not pass anyone's sniff test — specifically, the $8,000 donation from the chairman's household. Coors responded that it was only $4,000. I retorted that it was $8,000 from the household. The chairman, Jerry Grundhofer, responded, "Oh, yes — the other $4,000 came from my independent wife!"
Without a doubt, these two corporations now have to deal with someone who was elected despite their opposition. But, more important, it is simply a conflict of interest to sit on the compensation committee (at Heinz, Coors is chairman) and receive donations from the chairman, whose compensation has just been determined. It is also a conflict of interest for that chairman to write a check for a donation.
Gerald R. Armstrong