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The Future of Financial Reporting

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IN THIS REPORT

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Five years after Enron, corporate financial reporting stands at a crossroads. One route leads deep into the lightly charted terrain of "principles-based" reporting, where thousands of rules and regulations would be replaced by a relative handful of guiding precepts.

The norm in Europe, this would be terra incognita of the most profound sort for American companies. Proponents argue that the unceasing torrent of new standards and regulations is creating an unworkable system. Foes counter that if the existing rules failed to prevent corruption and provide transparency, a system based on vague pronouncements is doomed to fail.

The alternative path entails a continuing series of changes to the status quo that would undoubtedly increase complexity even as they attempt to improve transparency and accountability. No issue underscores these concerns more dramatically than fair-value accounting, in which assets and liabilities are marked to market rather than recorded at historical cost. The degree to which fair-value accounting is embraced (or not) will have a major impact on the very nature of corporate finance.

In short, Sarbanes-Oxley was just a warm-up for what lies ahead. In this special report, we examine the issues raised by principles-based accounting and disclosure, fair-value measurement, and improved financial transparency. We also include a poll of CFOs who have much to say about these issues. And, perhaps, much to learn.


FEATURE ARTICLES
Standing on Principles
In a world with more regulation than ever, can the accounting rulebook be thrown away?
Progress Report
Could it be that finance executives really don't mind regulation?
Will Fair Value Fly?
Fair-value accounting could change the very basis of corporate finance.
Will You Still Matter?
Displaying management's "stewardship" of assets and liabilities is not the main point of financial reporting, says FASB. More than one in four CFOs disagree. (A CFO.com Exclusive)
Days in Court
Would principles-based accounting slow the pace of securities litigation, or make it explode? (A CFO.com Exclusive)


ADDITIONAL RECOMMENDED READING
Fair-Value Champion Leaves FASB
Former KPMG partner Edward Trott, a surprise advocate of fair-value accounting, cuts short his second term as a member of the Financial Accounting Standards Board.
FASB Pops the Questions
The 2006 survey of FASB's advisory group asks whether domestic concerns trump international convergence.
New Leasing Rules Could Add Assets
Accounting changes by FASB and IASB should boost balance sheets, but aren't likely to spawn upgrades in credit ratings, says S&P.
Pension Dissension
FASB gets an earful as CFOs protest key details of pension-accounting reform.
FASB, IASB Call for Lease Experts
Help rewrite FAS 13. As a member of the working group, you'll be asked to provide practical advice, not write proposals.
AFP to FASB: Define Cash
The trade group claims that the Big Four accounting firms are reinterpreting the cash flow standard without oversight.
FASB Issues Lease Accounting Guidance
A new staff position requires companies to account for the "economic reality" of leveraged leases.
SEC's Cox, FASB Differ on 'Transparency'
FASB's draft of a new "conceptual framework" that would form the basis for public company accounting spells out a different theory of transparency than one described by SEC Chairman Christopher Cox.
FASB Hoists Red Flags Higher for Taxman
A new accounting rule changes the way companies report their uncertain tax positions, and may serve as a roadmap for IRS auditors.
FASB Votes to Revamp Lease Accounting
But new rules won't be ready until 2009.
EU: More Companies Should Pay for IASB
A broad new system for funding the International Accounting Standards Board through voluntary contributions receives formal support from European Union ministers.
FASB, Employers Clash on Pension Metric
Corporations don't like to estimate future employee salary hikes.
FASB's New Seventh Man
A Q&A with new FASB member Thomas Linsmeier
Convergence in Five Years: IASB Chairman
Even now, said Tweedie, 100 countries require or allow companies to use global accounting standards.
Congress, FASB Grappling with Pensions
The Senate and House must reconcile their retiree-benefit funding bills and meld the result with a major pension-accounting proposal.
FASB, CPAs Eye Private-Company Changes
But their goal "is not to create a separate, new set of GAAP requirements for private companies," the standards board and AICPA say.
Execs' Letters Rip FASB Pension Draft
The proposed statement by the accounting board could upset companies' annual budgeting and create chaos at year's end, employers contend.
Poll: CFOs Welcome FASB Pension Proposal
Most finance executives say that benefit funding should appear on the balance sheet, a new survey finds.
FASB: Put Pension Status on the Balance Sheet
The board takes the first step in its purported overhaul of the current retiree-benefit accounting system.
FASB Calls for a Cultural Change
Executives who use accounting-motivated transactions to prop up financial results are among the obstacles to a principles-based approach, says Robert Herz, the board's chairman.

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