CFOs in a Dead Heat on Allowing IFRS

Q2 FEI/Baruch College survey also shows weaker expectations for cap-ex, prices, and hiring, while a presidental straw-poll ranks Giuliani and Thompson tops and Hillary Clinton near the bottom.

Finance executives split 50/50 on allowing U.S. companies to use International Financial Reporting Standards rather than U.S. GAAP, according to Financial Executives International’s second-quarter CFO Outlook Survey. It also detected continuing deterioration in expectations for capital spending, hiring, and the ability to raise prices over the next 12 months, despite inflationary worries.

The June 11 electronic poll of 159 corporate finance chiefs was conducted by the 15,000-member FEI along with Baruch College’s Zicklin School of Business in New York. While executives evenly divided on the IFRS vs. GAAP choice for American companies, slightly more than half, 55 percent, supported the Securities and Exchange Commission’s proposal to give foreign companies registered here a choice between IFRS and GAAP. The other 45 percent were opposed.

“The globalization of the capital markets demands that we create a dialogue about the vitures of GAAP and IFRS,” FEI president and CEO Michael P. Cangemi said. “At this point, U.S. financial executives need to become more familiar with IFRS. It will at some future point have an impact on how financial statements are prepared.” FEI noted that the SEC plans to request comments on the proposed change allowing U.S. issuers to choose between standards.

The survey showed that CFOs expected an weighted average capital-spending increase of 2.3 percent over the next 12 months, while the rise in hiring should be 4.1 percent, and product prices should climb 1.9 percent. The percentages are off from first-quarter expectations, which were for increases of 7.9 percent, 5.2 percent, and 2.1 percent, respectively.

Further, 41 percent of respondents said they were actually shrinking inventory levels, with 67 percent reducing their rate of inventory growth by some amount. The survey found a contradictory inflation signal in the CFOs’ indication that they consider “finding qualified workers” to be a major business challenge, second only to general lmarket competition.

The survey’s results reflect “a relatively benign inflation environment,” said John Elliott, dean of the Zicklin School, who noted that there were signs in the results that larger firms expect less capital spending, lower hiring, and smaller price increases.

To the question wof whether CFOs were chaning manufacturing or other policies to conserve energy, 61 percent said yes. Some were examining solar or wind energy, solar reflective installations and conversion to steam heat from waste-burning, while others have improved electric motors and equipment cooling technology, or reduced packaging waste. One-third of companies said they had discussed or addressed the long-term implications of climate change or global warming, with the most comment immediate goals being environmental improvements in office space and new products.

In a political straw vote, the front-running candidates selected by the most CFOs were all Republicans, led by former New York Mayor Rudy Giuliani and actor and former Tennessee Senator Fred Thompson, with former Massachusetts Governor Mitt Romney and Arizona Senator John McCain coming in next. The strongest Democrat on the list, New York Senator Hillary Clinton, received a 6-percent vote.

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