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What have you done for me lately, CCR?

After spectacular success in influencing the accounting for income taxes standard and the 1990 Wyden Bill, FEI's Committee for Corporate Reporting (CCR) has established a solid track record on issues confronting the business community.

"We believe CCR more than any other business group influenced the repeal of FASB Statement 96, on accounting for income taxes, and its replacement with Statement 109," said current CCR Chairman Michael F. Sullivan, controller of Shell Oil.

With 35 to 40 members, he explained, CCR is divided into subcommittees that also maintain contact with the SEC, FASB, and AIC-PA, in addition to overseeing developing issues. Current hot topics CCR subcommittees are now dealing with, he said, include financial instruments, hedging, and stock compensation.

At a recent CCR meeting, members of five subcommittees discussed how they conveyed industry's message on these hot issues to Congress and the FASB.

* Financial Instruments: Jay Perrell, vice president--financial standards, American Express; alternate to Chairman Daniel T. Henry.

Since 1986, the FASB has been discussing how to account for the new financial instruments of the 1980s. "Our first major success," said Perrell, "was convincing the board that a company shouldn't be forced to disclose virtually every financial instrument it uses, regarding maturity, cost basis, market value, applicable interest rates, etc. We convinced them that was too much, not only difficult to put together but also to read." As a result, the FASB concentrated on disclosure requirements for off-balance sheet financing (interest rate swaps, etc.), and the subcommittee generally supported the resulting Statement 105.

For the recognition and measurement part of the project, the FASB focused on distinguishing between debt and equity. This was driven by the need to understand employee stock options (see the stock compensation subcommittee below), and Perrell reported the board has reached a tentative conclusion that such options are not a liability. "That's good, we told them." However, a second phase, the disclosure of current values of financial instruments, produced Statement 107, which Perrell reported is "very close to what was proposed. We had mixed success there."

The subcommittee has also analyzed a detailed discussion memorandum that takes a building-block approach to financial instruments. Perrell called it "one of the most comprehensive works they have ever come out with. It's like breaking a material down to its molecular structure." A highly charged issue to come, he added, is marked-to-market accounting for investment securities.

The overall problem, Perrell said, "is that the FASB is facing priorities (like employee stock options) that is forcing them to arrive at conclusions when they haven't really agreed on the overall framework for the project."

* Stock Compensation: Robert M. Thompson, vice president and controller, McGraw-Hill; chairman.

With the SEC under pressure to expand the disclosure of executive compensation, including stock options, it has turned to the FASB to explore the accounting for such options. (See accompanying article in "From FEI.") At this stage, the FASB appears convinced that the value of these stock options is more than zero. The subcommittee will continue to communicate to the board and its staff its belief that these options are capital transactions, not a liability that needs to be accounted for. "We need to let the FASB resolve this," Thompson said. "We may or may not like the answer it gives, but we certainly don't want Congress involved in deciding the issue."

* Hedging: M.L. Alper, vice president and assistant controller, ITT; chairman.

This subcommittee is unique, for it was formed in part at the suggestion of the FASB. Perhaps responding to the contributions by other subcommittees, the board suggested a CCR subcommittee might want to keep track of hedge accounting issues and provide industry input before a final determination is made. "They wanted a smooth process that would avoid adversarial positions," said Alper.

Some subcommittee members hoped the FASB would deal only with present inconsistencies, such as between Statement 52 and Statement 80, but apparently it has decided to come up with a detailed standard for hedging. Thus, it's evaluating whether one can hedge anticipated transactions, a potential time limit for transactions to qualify for hedge accounting, the definition of risk, and so forth.

* Internal Control: James E. Healey, comptroller and CAO, CPC International; chairman.

Congressman Ron Wyden (D-Oregon) has long been on a crusade to eliminate fraudulent business activity, and his bill introduced in 1990 was prejudicial to business, as well as expensive to administer. Subcommittee members addressed members of Congress and their staffs about these matters. Their information contributed to the bill's death in conference.

Wyden has introduced a scaled-back bill in 1992 that largely follows existing accounting literature, such as for going concerns, related-party transactions, and illegal acts. FEI has no objection to the bill, but Healey noted that "the accounting profession objects to its whistle-blowing aspects and an emphasis on SEC standard setting."

* Accounting for Income Taxes: Robert D. Buchanan, senior assistant controller--financial accounting, ALCOA; alternate to Chairman Earnest Edwards.

Members met with the FASB board and the staff before and after both the discussion memorandum and the exposure draft, explaining the practical problems that would be created by the proposed standard. But they didn't get their message across.

When FASB Statement 96 was issued, the subcommittee presented three one-day seminars across the country, defining the practical problems 96 created. "With the responses from these seminars," said Buchanan, "we were able to present the implementation task force with precise examples of the concerns we had."

That became the turning point. "The board moved from being totally theoretical in its approach to realizing the real-life implications of its decisions," Buchanan said. "At the public hearings before Statement 109 was introduced, board members were asking very intense questions about the practical impact of what was being discussed. In two cases, they invited in the companies of subcommittee members to discuss their problems--on issues that for three years they had chosen not to discuss."

Because the subcommittee has achieved its objective, it has been disbanded.
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Title Annotation:From FEI; Financial Executives Institute's Committee on Corporate Reporting
Publication:Financial Executive
Date:Sep 1, 1992
Previous Article:Employee stock option follies.
Next Article:Is liability threatening business?

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