Once upon a time, you could grow a mighty oak from a seed during the time it took the Financial Accounting Standards Board to make a ruling. But during a CFO conference at the Massachusetts Institute of Technology last November, FASB chairman Robert Herz ticked off the steps he had taken to streamline the board since taking the reins in July 2002, then asked the assembled finance chiefs, "How many of you still think we're moving too slowly?" No hands went up.
Even those who aren't happy about particular FASB projects concede that Herz has presided over one of the most ambitious and productive periods in the board's history. This quarter alone, FASB is scheduled to release five final accounting standards and propose eight more. Moreover, as 2004 draws to a close, Herz's accomplishments will almost certainly include issuing a final statement on stock-option expensing, despite opposition from members of Congress and a broad swath of Silicon Valley firms. Indeed, once a threat to FASB's very existence, stock-option expensing is now more of a speed bump.
Among the proposals, or exposure drafts, due out this quarter is a broad-based revenue-recognition statement. A Grant Thornton survey released in late August showed that three out of four senior financial executives agreed on the need for a comprehensive statement on revenue recognition.
But there's always a risk they won't like what they get. Any revamping of revenue recognition is not likely to be confined to the most common gray areas (think software licenses or professional services). "When FASB opens up an issue, it appropriately takes a broad perspective," says Grant Thornton CEO Edward Nusbaum, a member of FASB's Advisory Council. Nusbaum says some of the early revenue-recognition proposals he has seen could "significantly change the amount of revenue that companies can record."
Less likely to set off immediate battles is FASB's Fair Value Measurement statement, scheduled for final release next quarter. This effort to improve the reliability of fair-value measurements for assets and liabilities is too conceptual for companies to gauge its impact on their own balance sheets, but it lays the foundation for FASB to weave additional fair-value calculations into accounting standards. That, in turn, may increase balance-sheet volatility, and is likely to spark new debate over the right mix of historic-cost and fair-value measurements in financial statements.
Several of the final statements due by year-end are "convergence" efforts — projects to eliminate differences between international accounting standards and U.S. generally accepted accounting principles. Among them is a change in the method of calculating year-to-date earnings per share. "The impact will probably be to dilute EPS" for American companies, says Lisa Filomia-Aktas, a practice leader of Ernst & Young's On-Call Advisory Services Group.
Another convergence project would require companies to retrospectively apply changes in accounting principles, eliminating the practice of recording a one-time cumulative effect in the income statement in the year the new accounting principle is adopted. That proposal has drawn protests from many companies for the confusion and potential compliance burden it might cause. "The current public perception of 'restatements' is very negative," Eli Lilly and Co. chief accounting officer Arnold C. Hanish wrote to FASB. "Treating the correction of accounting errors and changes in accounting principles similarly will tend to eliminate [investors'] distinction between the two," echoed PG&E Corp. controller Christopher P. Johns.
There is, of course, much more on FASB's agenda for CFOs to watch, from upcoming exposure drafts on business combinations to a reexamination of "qualifying" special-purpose entities used by financial vehicles. It's all a part of the fast-paced, exciting world of accounting.