You Say You Want a Revolution

Readers write to say that fair value is not a revolution but a renaissance; that the notion of "fairness" is relative to different markets; that small businesses may be adversely affected by IFRS; and more.


CFO welcomes your letters. Send them to: The Editor, CFO, 253 Summer St., Boston, MA 02210

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Please include your full name, title, company name, address, and telephone number. Letters are subject to editing for clarity and length.

I wonder if a better title for David Katz's article would have been "Fair-Value Renaissance," rather than "Revolution" ("Fair-Value Revolution," September). A revolution, according to Webster's, is a drastic change in ways of thinking and behaving. Is FAS 157 a drastic change? I don't think so. The purpose of FAS 157 is to finally provide some consistency and level the playing field in addressing the fair-value measurement requirements already embodied in accounting standards, most of which have been around for a long time. The article refers to Appendix D of the standard for a list of many other standards affected by FAS 157. That list starts with APB 18. APB 18 was issued in March 1971.

Have the accountants been wrong for 37 years? No, they've just been all over the place on their methods, valuation techniques, and estimates. The reason is that they're accountants, not valuation specialists. Accountants understand the standards. Valuation experts, housed at most companies in a separate department or even outsourced, understand the techniques. The renaissance that FAS 157 and FAS 159, the Fair-Value Measurement Option, could bring to us accountants is the long overdue integration of accounting and valuation expertise between our ears, rather than between departments.

William Lougheed
Via E-mail

Fair value is based on comparatives. A good way of going forward on fair value would be to borrow from economic theory concerning purchasing power parity theory, whereby international transactions can be increasingly benchmarked-based on the above. What is fair for one economic market would be distinctly unfair in other markets. A lot of skewness in markets arises because of such pricing distortions, creating arbitrage opportunities. A public database should be established whereby any CFO or manager seeking to determine the fairness quotient of a transaction could quickly benchmark the same against information freely made available on the Internet. [This approach] would help avoid cross-border and domestic legal wrangles and end a lot of turmoil.

Ultimately, fair value calls for a lot of sincerity and honesty. The concerned stakeholders have to check that negotiated pricing is not passed off as fair value.

Anand Subbarathnam
Via E-mail

Two Years Are Harder than Four

Advising students to stay home and attend two-year colleges ("Debt Financing 101," Topline, September) might seem to make sense, except for one thing: many two-year colleges do not accept federal loans.

Trying to find financing for a two-year college is even more difficult than it is for a four-year school. The default rate is higher and lenders know this.

Also, the graph in the article does not show how costs are faring at two-year schools. Have they been staying the same while those for other schools have been rising?

Vicki Klinowski
Via E-mail

Editor's Reply: According to the College Board, over the past five years tuition and fees at two-year colleges have increased by 41 percent, as compared to a 51 percent increase for public four-year colleges and a 31 percent increase for private four-year colleges.

The Effects of IFRS

This is in response to your July/August article on international financial reporting standards ("IFRS and When," Topline).

I am a member of the Financial Accounting Standards Board's Small Business Advisory Committee, representing the Small Business Entrepreneurship Council in Oakton, Virginia. At our last FASB meeting, held on June 27, the committee discussed at great length the effects of implementing IFRS. Board member George Batavik and FASB chairman Bob Herz acknowledged that more research is required to determine the immediate and long-term effects on the small-business community in adopting the IFRS requirements.

What your readers and subscribers should be aware of is that IFRS does not recognize the last-in-first-out (LIFO) basis of inventory accounting or the mark-to-market valuations. As a tax accountant, I am deeply concerned that small and midsize businesses will be adversely affected by the implementation of IFRS. There is a high probability that many such businesses may have to keep two sets of books — one for financial reporting and the other for tax compliance and reporting.

The Internal Revenue Service currently has a working group to research the tax implications. The IRS director in charge of the IFRS project, Ed Connelly, told me during a recent telephone conversation that the IRS document (for internal use only) would not be ready until sometime later this year. He stated that under IFRS, it would be the responsibility of Congress to pass the necessary tax legislation to permit businesses to retain the LIFO and mark-to-market calculations for tax compliance and reporting purposes. If Congress fails to act, all businesses currently using these established calculations would face huge tax increases, which would impede continued economic expansion.

Leonard Steinberg
Steinberg Enterprises LLC
West Windsor, New Jersey

Wishing for the Best

I want to commend you on your terrific article "Going for the Gold" (July/August). Your explanation of the Women's United Soccer Association's downfall is the best I've seen.

I joined the front office for the league in its second season and thought it was going to be fabulous. I quickly learned that the amount of sponsorship revenue needed was unattainable. It was very disappointing to all involved — and heartbreaking for the players and fans.

It's my hope that Women's Professional Soccer thrives. I'll be rooting from the outside, but am hopeful and confident that they will do it right and be highly successful. Thank you again for doing your homework and painting the picture correctly.

John Feeley
Former Vice President of Sales, WUSA
Current Vice President, Sales, Syndication, and Affiliate Relations, Comcast SportsNet Bay Area
San Francisco

I am not really a big soccer fan, but with three athletic daughters I am a big supporter of anything that encourages girls playing sports.

As an avid softball coach, I was surprised your article didn't make a comparison with the National Pro Fastpitch women's softball league. You stated that no professional women's league has survived other than the WNBA, but this league is alive and doing well. From what I can tell, it also uses small stadiums to keep its costs down and has a loyal fan base because of its low ticket prices and big-name (in the softball world) players. If this new soccer league gets off the ground, I'll be sure to take a drive to Boston for a game with my girls to help support it.

Derek Volk
Scarborough, Maine


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