By far the single greatest concern of preparers, however, and one that was shared by companies of all types, was the suggestion that businesses be required to use the direct cash flow method. Among companies, there was near-universal agreement that their financial systems were not set up to capture such information and that doing so would be costly. "We strongly object" to the proposal to use the direct cash flow method, wrote FirstEnergy controller and chief accounting officer Harvey L. Wagner, who added that the costs to his company would "far outweigh" any benefit to investors.

Shell's vice president of accounting and reporting, Paul Morshuis, agreed, noting he had not heard of any significant demand among financial statement users for the little-used direct method, "and therefore cannot see that this requirement could possibly survive cost/benefit analysis."

Likewise, the Institute of Management Accountants devoted three full pages of its comment letter to explaining why most corporate computing systems are not set up to provide the sort of data the direct cash flow method would require. That complaint was repeated by Intel controller James Campbell, who said the information would be "extremely difficult" to obtain "without a complete system solution or at a minimum a partial system solution with extensive manual process enhancements." He said the making the necessary modifications at Intel would "cost us in excess of $5 million in implementation costs and $2 million a year on an ongoing basis."

In essence, the direct method of accounting tracks cash changes from the bottom up to arrive at net income, rather than starting with net income and making adjustments. (Currently, most companies use the latter, indirect method.)

"The feedback I'm hearing is mainly about the direct method," says Grant Thornton's Hepp, whose firm recently surveyed 511 CFOs about the financial statement presentation. A large majority of CFOs — 63% — said they were not even familiar with the project, a surprising result given the changes that it would require of publicly traded companies.

Of the 188 CFOs who were familiar with the project, a quarter of them said the proposed format would not be beneficial to users of their financial statements, while another 36% said that the proposed format would be beneficial, but that the benefits to users still would not justify the company's cost of implementing it.

Another issue raised in the comment letters was whether such a substantial change should be rolled out at a time of economic crisis, particularly when FASB and IASB themselves are planning to accelerate the roll-out of several significant accounting changes by 2011. If American companies are required to adopt IFRS at the same time that new financial statements are implemented, wrote Intel's Campbell, "it will create a tremendous amount of avoidable stress on our systems and reporting infrastructure."

To be sure, most of the complaints came from preparers rather than financial statement users. In his comments, Kurt Schact of the CFA Institute, an advocate for analysts and investors, noted "We believe that the proposals . . . would address major shortcomings with current financial statement presentation . . . including the limited transparency of the cash flow from operations in financial statements."

During a FASB webcast at the beginning of this year, Moody's managing director Greg Jonas also seemed to contradict corporate claims that analysts typically don't ask for a direct method cash flow statement, saying that he and other analysts have used the indirect method to analyze cash flows "because that's all they have." Both he and panelist Joe Joseph of Putnam Investments said they thought the direct method was superior for predicting future cash flows, though they admitted it would take time even for analysts to adjust to the change.

Still, preparers were skeptical. IBM "is aware that limited academic research supports the hypothesis that the direct method of cash flow provides better predictive value to future operating cash flows than either the indirect method or the income statement," wrote Gregg L. Nelson, the company's vice president of accounting policy and financial reporting. But if that were true, he argued, companies themselves would use that information for internal reporting, something IBM and many other companies insist they do not do. "To state the obvious," added Nelson, "future cash flow is largely driven by future transactions. Historical data is of limited predictive value." IBM, he wrote, believes that revenue, days sales outstanding, changes in accrual balances and company information should be sufficient for investors to make their decisions.

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