A Perfect Storm

With fair value, IFRS, and XBRL, finance is experiencing a remarkable sea change.


Last month several CFOs in the energy sector offered up painful evidence that timing is, indeed, everything. During one investor call after another, they pointed to the combination of surging oil prices and fair-value accounting to explain write-downs of tensor even hundreds of millions of dollars.

On the plus side, many said, the losses will reverse themselves in the third quarter as declines in oil prices bolster the condition of certain derivatives they hold. Fair value or "mark to market" accounting cuts both ways, sending earnings up or down depending on when a given asset is valued. In fact, one CFO said that his company's sizable noncash charge would have been "completely eliminated" had it valued its derivatives on one day rather than another.

That kind of volatility may be something that many CFOs have to accept as fair-value accounting becomes a much stronger presence in corporate finance. If that weren't enough, the move from generally accepted accounting principles (GAAP) to international financial reporting standards (IFRS) is about to put most corporate finance departments through a steep learning curve. And then there's XBRL, the "integrated data" standard for automating financial reports that has now been made mandatory.

Taken together, a case can be made that finance is experiencing a sea change — or a perfect storm. The pace of change is so remarkable, in fact, that there is already talk of imposing a moratorium on new rules and standards sometime after IFRS supplants GAAP, so that companies can catch their collective breath.

To help you navigate through these roiling waters, our cover story, "Fair-Value Revolution," and our interview with IFRS eminence Sir David Tweedie explore critical aspects of these accounting changes. Meanwhile, you can edify your strategic side by "Digging In" to our look at supply-chain efficiencies, or explore "Better Ways to Buy," or discover why cutting your business partners a break during troubled times may not be such a good idea. We headlined that story "No Time to Lose," a phrase that could be just as aptly applied to virtually any aspect of corporate finance you care to name.


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