Such processes at large companies include setting up a committee to look at a rule’s impact on the P&L and balance sheets, as well as communicating to the various departments that could be affected.
Still, while dedicating full-time staff to emerging rules is helpful, the extra work doesn’t always seem worth the distraction. “Investors don’t value the changes that are coming,” Sterin says. “It makes the financial statements more difficult for them to understand, and that tends to push them away from GAAP [generally accepted accounting principles] financials and more toward cash-flow statements and non-GAAP measures.”
Regardless of their ultimate usefulness, accounting rule changes are coming and must be addressed. Even finance chiefs with less-complex operations who can ignore many of the changes must still pay close attention. “We would rather manage the business by pointing out things management should work on than worry about accounting technicalities,” says James Graner, CFO of Graco, which manufactures fluid-handling equipment. “But we work hard, do our analysis, and make our conclusions, and our external audit firm seldom challenges what we’re doing.”
But How Firm Is That Deadline?
Adding to the challenge, of course, is the fact that, for all the impending changes, there is also a legacy of altered deadlines and general delay. Proactive companies have sometimes endured months or even years of needless preparation.
The most recent example is the SEC’s 2008 proposal that would have required all U.S. publicly traded companies to convert to international financial reporting standards by 2016, and would have allowed some of the largest to begin using IFRS this year. The financial crisis pushed the project onto the SEC’s back burner, and the commission could decide to scrap the whole concept next year.
Multinationals like UTC that had been actively providing the SEC with feedback and examining how an IFRS option would affect them internally have had to shift their own priorities. UTC is instead focusing on specific pieces of the convergence project, rather than addressing it as a whole.
While standard-setters have set 2011 as the deadline for finalizing that convergence, they have not indicated when companies will have to implement its various elements. “There is fatigue in having to deal with so much uncertainty and dates shifting around,” says Gina Kim, director of public policy and external affairs at Grant Thornton. “It’s hard to keep motivation up.”
Indeed, some finance staffers may occasionally wonder who they work for, the company or the regulators. “These new rules keep finance’s attention away from running the business and helping to support the strategic objectives of the company,” says Principal’s Elming. “You have to get the right balance. The balance is out of whack right now.”
Sarah Johnson is senior editor for regulation at CFO.
Moments of Truth
In theory, the Securities and Exchange Commission’s delayed decision on whether to require all U.S. publicly traded companies to adopt international financial reporting standards (IFRS) should be moot a year from now; over the next 12 months a series of rules is scheduled to be revised so as to achieve seamless standardization between U.S. generally accepted accounting principles and IFRS. In reality, it will be more complicated; rule makers have acknowledged that some proposals will lag because standard-setters have thus far failed to find common ground on some issues (such as accounting for insurance contracts), and accounting observers believe “convergence” doesn’t necessarily mean the two sets of rules will be the same. Major projects are scheduled over the next year as follows: