Ideally, companies should track proposals before they are finalized, according to observers. “It helps you be a better manager of your total accounting risk the sooner you get on top of this stuff,” says Greg Elming, Principal’s controller.
However, companies’ size and resources may work against that need. After all, “there are only 24 hours in the day,” notes Wendy Hambleton, national Securities and Exchange Commission director at BDO Seidman. “Small companies’ accounting staffs are too small to see how new standards will affect them and to monitor those in the proposal stage.”
Instead, smaller businesses have to rely on a mix of teamwork and priority-setting if they want to explore the effects of a rule change before it is finalized — or they will have to scramble to catch up later. “We don’t have the bench to sit around looking at all the accounting literature that comes out,” says Rob Ellis, vice president of accounting and finance at Radiant Systems.
Agents of Influence
Some companies, however, don’t simply monitor changes but also help determine them. They communicate consistently with regulators, provide written comments, and act as quasi beta testers of rules before the rules are publicly released. Microsoft, Intel, and UTC are among the large companies that frequently take this tack.
“We want to help shape the rules and make sure we’re going to be able to implement them and that they’re not going to have a detrimental effect on us,” says Smyth.
A year ago, UTC hosted FASB project managers involved in tweaking the revenue-recognition rules at two of its Connecticut facilities for a daylong session. The controllers of each of the company’s six business units learned about FASB’s leanings, asked questions, and shared their thoughts on the new standard. When the groups met again this past January, some of FASB’s positions had changed, which Smyth partly attributes to many companies’ input, including that of UTC.
“They could physically see for themselves how the rules they were thinking of putting forward would impact a real live company, from people constructing elevators for new buildings to people repairing jet engines with 14,000 parts,” Smyth says.
Between the do-what-you-can approach of smaller companies and the direct involvement of some large companies lies a middle ground of dedicated resources combined with internal processes for confronting significant rule proposals. For example, Celanese established a four-person “center of excellence” five years ago.
“Their primary role is to anticipate and interpret complex accounting rules so we’re efficient in executing them and we’re not surprised,” explains Steven Sterin, CFO of the $5.1 billion chemical company. He calls the dedication of just a handful of staffers to the task a “modest” but important investment. “It has really allowed us to reduce bottlenecks and deal with the complexity” of new rules, he says.
Sterin believes in tackling proposed rule changes when they begin to gain traction on standard-setters’ agendas and seem likely to have an effect on his company. “In today’s world, the accounting rules are so complicated that you’ve got to ensure — whether it’s a new rule that’s complicated or a transaction that touches complicated rules — that you’ve got very structured processes to deal with it,” he says.