The Committee on Corporate Reporting.

As the FEI committee dedicated to accounting, reporting and other controllership issues, the U.S. Committee on Corporate Reporting always keeps its ear to the ground for any and all developments affecting financial executives and their companies. The committee closely communicates with all the major standard-setting bodies through its standing subcommittees, which serve as CCR and FEI liaisons to the Securities and Exchange Commission, the Financial Accounting Standards Board, the American Institute of Certified Public Accountants and the Association for Investment Management Research.

Those close links form the foundation for the activities of CCR's ad-hoc project subcommittees, which focus on addressing specific reporting issues as they surface. Last year, says Earnie Edwards, vice president and controller of Aluminum Company of America and chairman of CCR, "Stock compensation was definitely at the top of the list." As many FEI members know, when the FASB proposed expensing executive stock options, CCR strenuously objected, contending that the value of options isn't measurable with enough accuracy to record in financial statements. "When we met with FASB representatives several months ago, we proposed that if the FASB insists on measuring stock compensation, it makes more sense to use a range instead of one number for stock options," Edwards says.

Faced with overwhelming opposition from the business community, the FASB decided to allow companies to disclose executive stock compensation in a footnote to their financial statements rather than requiring companies to expense the options. But companies that choose not to expense options must still disclose what the impact on net income would be if the options were expensed.

So while the initial battle on stock compensation may be over, CCR is still waiting to see if it's won the war. "We want to see what the FASB comes up with this spring before we do anything else," Edwards explains. The FASB hasn't yet stated whether it will issue a final standard or revise its exposure draft, he says, nor how it would require stock-option values to be calculated. Valuation has been the crux of much of the stock-option controversy. Meanwhile, Brad Goodwin, vice president and controller of Genentech and chairman of CCR's stock-compensation subcommittee, sent another letter to the FASB in December recommending specific disclosures to be included in the note to financial statements and reiterating the committee's position on stock options.

CCR also threw its hat into the derivatives ring last year in conjunction with FEI's Committee on Corporate Finance. In a joint comment letter to the FASB, the committees acknowledged the need to improve derivatives disclosure, but decried the volume of detail the initial exposure draft proposed. Some of the information the FASB wanted, such as more detailed disclosure of anticipated transactions, is proprietary and doesn't belong in a disclosure statement, the letter pointed out. In a plea for perspective, the committees asked the FASB not to be swayed by public pressure to impose excessive and costly reporting requirements, which would hinder the competitiveness of any company using derivatives.

In a related development, members of CCR and CCF formed a task force that met with representatives of both the FASB and the SEC and developed a statement of principles and illustrations for good disclosure. CCR ultimately played a major role in convincing the FASB to reduce the amount of detail required under FAS 119 (the new derivatives-disclosure standard), arguing that much of it isn't valuable to users, and to allow companies to aggregate some information by derivatives category rather than disclose each product separately.

The committee is paying close attention to the SEC, too. The commission, which began requiring expanded disclosures in 1994 reporting, as well as detailed compliance with FAS 119, is expected to mandate additional requirements sometime this year.

Another big part of CCR's job is to monitor developments in the public accounting and audit profession, including the recently formed AICPA Special Committee on Assurance Services, chaired by Robert K. Elliott, assistant to the chairman of KPMG Peat Marwick. The special committee is analyzing and reporting on the state of the audit function and believes that the auditor community must expand and revise its services if the profession is to survive. Although "we've had fairly strong assurances from Bob that his committee won't recommend anything that doesn't add value to the reporting process," says Fred Hirt, vice president and corporate controller of the Upjohn Co. and chairman of CCR's AICPA standing subcommittee, "many CCR members are concerned about the implications of expanded auditor services. As a result, Bob has committed to keeping in touch with CCR by meeting quarterly with our ad-hoc subcommittee, which will serve as a 'business panel,'" he reports.

Another controversial audit-profession project is the "Report on Auditor Independence to the Public Oversight Board," compiled by an independent group that the POB commissioned. Many CCR members have expressed disapproval of this report's suggestion that auditors judge whether or not management's accounting policies are the most appropriate possible, not to mention its recommendation that auditors view the board of directors as their client, not corporate management. The report also suggests auditors "take an active role in overseeing and strengthening the company's financial-reporting process." CCR is compiling its members' reactions as the first step in preparing a position letter.

According to CCR chairman Edwards, the issue of reporting consolidated entities is starting to gather steam, too. The FASB is considering whether to develop a new standard for consolidations, and in revising current rules, says Philip Ameen, vice president and comptroller of General Electric Co. and chairman of the consolidations subcommittee, the board is targeting companies' accounting for minority interests in other companies. Under current accounting guidance, companies are required to consolidate the results of another entity into their detailed financial-statement categories only when they have a majority ownership interest. The FASB's proposed standard would require companies to consolidate all entities under their control in their financial statements, unless the control is temporary.

CCR responded to the FASB's preliminary-views document with strong criticism. Essentially, the FASB's criterion is effective control of an entity, but CCR, in its comment letter, argues legal control (majority economic interest) "is an absolutely necessary minimum criterion." In fact, the very idea of using effective control as the yardstick for consolidating entities "indicates we are abandoning meaningful accounting principles in favor of alchemy," the letter asserts, adding this method also would create "inconsistent accounting."

Ameen states, "We'd be opposed to consolidating anything less than a majority interest, because using the individual assets under a company's control as a measurement doesn't sufficiently reflect the degree of the company's interest." Besides, the FASB's proposal won't necessarily give users the information they want, because "investment analysts are only interested in assets that companies control and from which they derive an economic benefit," he observes. At this point, the FASB is still considering the comments it's received, so only time will tell if the committee's views will prevail. But one thing's for sure: CCR won't take a back seat on this issue, or any other reporting issue that crosses its path.

RELATED ARTICLE: WHAT ELSE HAS CCR BEEN UP TO?

As if executive stock compensation and derivatives weren't enough, here are some of the other issues FEI's U.S. Committee on Corporate Reporting tackled in 1994:

* The AICPA's statement of position on risks and uncertainties;

* The AICPA Special Committee on Financial Reporting (Jenkins Committee);

* The FASB's new standard on impairment of long-lived assets;

* The FASB's hedge-accounting project; and

* International accounting.