When Controllers Fear a Loss of Control

FEI panel members sound off about what keeps them awake at night.

Controllers had their day at the annual Financial Executives International conference on financial reporting. And a panel of executives echoed concerns about that key finance position that were both global and domestic.

Topping the list of items tackled by the four-person panel, moderated by Eaton Corp. controller Billie Rawot, was the recruiting and retaining of talent. But following close behind were worries about the growing complexity of accounting; the role of outsourcing; globalization and the effects of the new International Financial Reporting Standards (IFRS); providing quarterly earnings guidance to analysts; and complying with the newly minted Auditing Standard No. 5 issued in July by the Public Company Accounting Oversight Board.

Joining Eaton’s Rawot on the panel were Sallie Bailey, chief financial officer of Ferro Corp., and controllers James Barge of Time Warner and Thomas Tefft of Medtronic. While all are global companies, each represented a different type and size of operation, ranging from Ferro’s $2 billion in annual revenues, to Medtronic’s $13 billion and Time Warner’s $46 billion.

The panel gave a repeat performance later in the day, giving participants a chance to expound on their concerns and answer questions.

The talent issue — with a focus on how to train and retain top controllers — was first on the controllers’ agenda. Time Warner’s Barge urged companies to “pay a premium for your talent; it’s worth it,” noting that regardless of a company’s size, managers all must battle the human resources department to increase salaries. “HR wants to give everybody a three percent increase,” he quipped. Adding perspective, Barge explained that auditors, who work closely with finance staffs, receive raises of between eight and 10 percent, plus bonuses and retention rewards. That disparity could eventually cause a retention problem, according to Barge.

Regarding the complexity of accounting standards, Barge conceded that “everyone winds up chasing our tails no matter how many resources we have.” He said that the pace of change compounds the complications of the rules by adding a critical time element to the mix. And he pointed to the recent rise in the number of restatements over the past few years, arguing that two culprits behind that trend have been the increase in accounting complexity and the heightened level of regulation. “Ten to 15 years ago, when I was with the [Securities and Exchange Commission], there was a more reasonable approach” taken with regard to forcing restatements that have no material affect on a company, he said.

Although Time Warner’s American operations are not preparing to move to IFRS, Barge was glad to see the SEC’s two proposals: a proposed rule on allowing global companies to file results using IFRS, instead of reconciling with U.S. generally accepted accounting principles, and a concept release on allowing U.S. companies to do the same. Barge “sees the advantage,” but thinks the reaction of the market will determine whether changing standards is a good idea. If the markets react negatively to the removal of reconciliation or switching from GAAP to IFRS, that will be the real test. “But I don’t think the markets will penalize companies.”

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