Do Companies Deserve a Break from Fair Value Accounting?

Fair value reporting, long a contentious issue, has become even more controversial now that most companies are required to value illiquid assets at market prices and record them on the balance sheet. The implementation of FAS 157 in the first quarter, coinciding as it did with the lingering effects of the credit crisis, prompted both Standard & Poor’s and the International Institute of Finance (IIF) to recommend changes that, at the very least, would lead to clearer guidance and, at most, would relax or suspend the rules.

The subject is so controversial, in fact, that the IIF was forced to rescind its most divisive proposals following angry protests from some members, including Goldman Sachs and Morgan Stanley who oppose wholesale changes to FAS 157. A key area of contention was the global banking lobby’s pitch to use historical prices instead of fair market prices in valuing assets, thus softening the blow to balance sheets during times of economic uncertainty.

Lucas van Praag, a Goldman spokesperson, dismissed the IIF’s initial recommendations as “Alice-in-Wonderland accounting” that would let companies misrepresent assets by using inaccurate valuation data. So disturbed was Goldman that it severed its relationship with IIF last week, says van Praag. After the squabble among IIF members, the organization basically agreed with S&P that fair value accounting should continue, albeit with clarification of confusing points.

Still, the debate is not likely to quiet down anytime soon. The SEC acknowledged the scope of the disagreement by announcing plans to hold a round-table discussion in July, even though Chairman Christopher Cox has been quoted as saying not much will likely change. And the International Accounting Standards Board (IASB) plans to bring auditors, regulators and company executives together June 13 in London to discuss the valuation of illiquid securities and related disclosures.

The IIF started the fiery debate in a confidential memorandum to the Financial Accounting Standards Board (FASB) and IASB in April, the details of which were leaked to the press last week. At issue are the larger write-downs required for illiquid assets under FAS 157. Further, IIF charges, as assets lower in value and the market for securities becomes increasingly illiquid, shares would be dumped at fire sale prices. Perhaps not surprisingly, some critics propose reinstating FAS 157 once the economy improves—and assets increase in value, making companies look more profitable.

The IIF and S&P aren’t alone in their concerns about the effects of illiquidity on valuations. The Financial Stability Forum (FSF), an organization representing major national financial authorities, recommended in an April report that the IASB and FASB boards develop a single set of accounting and disclosure standards for illiquid securities “on an accelerated basis.”

The overriding consensus, however, is that fair value accounting accurately gauges the fiscal health of companies. Attendees at it an S&P conference on May 15 were “broadly supportive” of the concept while recommending clearer guidance—a view that S&P shares, according to Neri Bukspan, managing director of credit market services. At the same time, Bukspan and S&P want to see “more useful, organized and forward-looking valuation information available for analysis”—rather than the boilerplate, scattered and sometimes incomprehensible information, Bukspar, often reported under current fair value accounting rules.

Even as the debate heats up, most parties concede that fair value accounting is here to stay. “We believe that fair value has the best chance of reflecting economic reality, but we also realize some of our clients are uncomfortable with fair value,” says Robert J. Kueppers, deputy CEO of Deloitte & Touche USA LLP. “The real question, is, ‘Are the values too low or are the markets too low?'”

Article found in Risk Management, Investor Relations, Compliance, Accounting/Financial Reporting, Governance & Accounting

Risk Avoidance Trumps Risky Investments

Risk avoidance and volatility are the top priorities for pension plan sponsors, according to an international SEI survey of 305 executives who oversee pension plans with $30 million to more than $5 billion in assets. Nearly two-thirds (62%) said the desire to maintain current returns outweighs the potential for portfolio gains from speculative investments; a sharp rise from the 54% who voiced that opinion in a similar survey last year. That feeling was most prevalent at U.S. plans with more than $1 billion in assets; 76% of participants in that category said their organizations would not take on more active risk in an effort to increase returns.

The just-released survey was conducted in April, but the same issues that drove heightened risk concerns then continue today: the credit crisis, stock market volatility and increased regulations governing how fund assets can be allocated. Indeed, more than half (53%) of those polled said monitoring investment risk has become more complex, up from 41% last year, and just under half (45%) said that insuring compliance with pension-related laws has become more challenging. “The headache of identifying and subsequently managing risks continues to grow for pension plan sponsors," says Jon Waite, chief actuary for SEI's institutional group. "The simple fact is that financial executives are tiring of dealing with uncertainty when it comes to controlling these risks."

Those concerns are exacerbated by the fact that more funds are underfunded than they were one year ago, leaving little room for investment error. Slightly more than two-thirds of those polled indicated that their plans were above the requisite 90% funding level, a sharp drop from 75% in the same survey a year ago. The pressures have made pension plan funding an important part of governance strategy, placing increased responsibility in the hands of investment committee members and top executives, according to the respondents. More than 80% of those polled (up from just over 50% last year) said accountability for monitoring governance risk falls on these internal functions.

On the Move

Flowers Foods Inc., the $2 billion maker of packaged baked goods based in Thomasville, Ga., promoted R. Steve Kinsey to executive vice president and CFO from senior vice president and CFO. Kinsey, 47, joined the company’s tax department in July 1989, becoming director of tax in June 1998. Kinsey became controller in March 2002, adding vice president to his title in June 2003. He was named senior vice president and CFO in September 2007.

Dollar Thrifty Automotive Group Inc., the $1.8 billion car rental company headquartered in Tulsa, Okla., hired Scott L. Thompson as senior executive vice president and CFO. Thompson, 49, took over from board member Richard W. Neu, 52, who became interim CFO when Steven B. Hildebrand, 49, retired after 20 years with the company. Thompson co-founded Houston-based automotive retailer Group 1 Automotive Inc., where he spent 10 years as executive vice president, CFO and treasurer.

The National Life Group, the $1.4 billion family of financial service companies based in Montpelier, Vt., appointed Edward J. Parry III executive vice president and CFO after serving as interim CFO since November 2007. Parry, 48, joined National Life after 16 years at The Hanover Insurance Group Inc., where he had been CFO since 1996. He was named executive vice president in October 2003 and appointed to the board of directors in December 2003.

Monster Worldwide Inc., the $1.4 billion online employment company based in New York, named James M. Langrock senior vice president for finance, CAO and global controller. Langrock, 43, replaced Jon Trumbull, 41, who resigned to pursue other opportunities. Langrock joined Monster after 18 months at Motorola Inc.’s enterprise mobility business. Previously, Langrock worked at Symbol Technologies Inc. from 2003 to 2007, when Motorola acquired the business.

Wolverine World Wide Inc., the $1.2 billion shoemaker based in Rockford, Mich., promoted Michael D. Stornant to controller from senior vice president of the global operations group. Since joining Wolverine from Ernst & Young LLP in 1996, Stornant, 42, has held financial management positions of increasing responsibility. Most recently, he was senior vice president of finance, responsible for the company’s manufacturing and leather divisions. Stornant will continue to be responsible for the company’s leather division.

CH Energy Group Inc., the $1.2 billion utility holding company based in Poughkeepsie, N.Y., appointed Kimberly J. Wright, 41, vice president of accounting and controller. Wright replaced Donna S. Doyle, 60, who remains a vice president with the company. Wright, who joined CH Energy in October 2006, also continues as controller of its largest subsidiary, Central Hudson Gas & Electric Corp. Wright’s prior experience includes more than 15 years at Northeast Utilities and Coopers & Lybrand LLP.

International Textile Group Inc., the $1 billion textile manufacturer headquartered in Greensboro, N.C., hired Willis C. Moore III as CFO and executive vice president. Moore, 55, replaced Gary L. Smith, 49, who left to pursue other opportunities. Moore joined the company from Polymer Group Inc., where he was vice president and CFO from November 2003 until April 2008. From December 1994 until November 2003, Moore was CFO of Unifi Inc., where he became executive vice president in July 2000.

Texas Industries Inc., the $996 million supplier of building materials based in Dallas, promoted Kenneth R. Allen to vice president of finance and CFO from vice president, treasurer and director of investor relations effective Aug.1. Allen, 50, will replace Richard M. Fowler, 65, who is retiring. Allen joined Texas Industries in 1985 and served in a number of financial positions before becoming treasurer and director of investor relations in 1991. He became a vice president in 1999.

Global Industries Ltd., the $992.5 million provider of offshore construction and support services headquartered in Carlyss, La., named Jeffrey B. Levos senior vice president and CFO. Levos, 47, replaced Peter S. Atkinson, 59, who joined Global as vice president and CFO in September 1998, became president in June 2000 and reassumed the additional title of CFO in December 2005. Levos joined Global from Cooper Industries Ltd., where he was vice president of finance and CAO.

Tween Brands Inc., the $883.7 million specialty retailer for girls based in New Albany, Ohio, hired Rolando de Aguiar as executive vice president and CFO. De Aguiar, 59, replaced Paul C. Carbone, 42, who resigned in February after less than a year as senior vice president and CFO. Previously, de Aguiar was a managing director with Abacus Advisors LLC, a New York-based management advisory company. Before that, he was chief administrative officer for now-defunct Ames Department Stores Inc.

The Washington Post Co., the $4.2 billion education and media business based in Washington, D.C., announced that vice president of finance and CFO John B. Morse Jr. will retire at year’s end. The company is expected to name a successor soon. Morse, 61, joined the company as vice president and controller in July 1989, and became vice president of finance and CFO four months later. Previously Morse was a partner at Price Waterhouse.

PerkinElmer Inc., the $1.8 billion health sciences company based in Waltham, Mass., appointed Michael L. Battles interim CFO; he will remain vice president, controller and CAO. Battles, 39, will succeed Jeffrey D. Capello, 43, who is resigning effective June 6 to pursue other opportunities. Battles joined PerkinElmer in November 2001, becoming vice president and controller in October 2005 and CAO in November 2006. Previously Battles was a senior manager at Deloitte & Touche LLP.

Article found in Careers

FIREapps Launches FX Data Integrity Tool

Once the quality of the data has been verified, FiREapps Enterprise can use its TransactionFX module to calculate the company’s foreign currency exposure. TransactionFX “checks the data against company rules to identify missing exposure data, unexpected changes in exposures, potentially erroneous transactions and potential incorrect postings to the G/L,” says Koester. TransactionFX also can analyze and recommend steps to eliminate exposure risk based on how a company understands applicable accounting standards. “This allows the company to make sure that what they expect will happen actually happens” if it follows those recommendations, notes Koester.

Article found in Global Liquidity, Cash Management, Tools & Technology, Governance & Accounting, Enterprise Risk Management

Adaptive SaaS Application Provides 24/7 Web Access

Adaptive Inc. has introduced a software-as-a-service (SaaS) application that gives companies around-the-clock Web-based access to data governance and related enterprise services. The new offering provides a wide range of “on demand” services to jumpstart and and continually monitor governance and metadata management projects, Adaptive says.

“Adaptive OnDemand sets a new benchmark for data governance success, a critical building block for a robust and extendable enterprise,” says Max Gano, vice president and general manager of information delivery for Adaptive. Moreover, he adds, it “creates a pioneering roadmap for fully integrated governance, enterprise architecture and data management services that have the power to transform operational efficiencies for measurable competitive differentiation.”

OnDemand encompasses three key delivery areas: hosting, implementation and educational services. It helps users establish a common language for data management; continually communicate priorities, status and successes; provide compliance reports; and monitor data quality metrics, the company says.

Article found in Governance & Accounting, Tools & Technology