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Readers weigh in on changing lease rules and other top concerns of senior finance executives.
CFO Readers, CFO Magazine
February 1, 2011
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I am for the new leasing standard ("Taking the 'Ease' out of 'Lease'?" December 2010) because it provides better disclosure around the intent of leases. In the past, many companies buried their leasing costs inside the profit-and-loss statement as leases. There were footnotes in the financial statements that showed the leasing obligation, but that was it. However, if you look at companies that rent airplanes, equipment, vehicles, and so on, you'll see that their asset basis does not reflect the intent of the leases. So, there are issues with overall presentation.
The right-to-use concept is very good, and will allow a better look at the intent of leases. You will get a better overview of what the company is doing in terms of the financing and what its obligations are under financing. This approach will also influence cash-flow statements along with some ratios.
The debt-to-equity ratio will change, but, realistically, the leases are an obligation to the right of use. So, this will be better disclosed. I am not in favor of off-balance-sheet financing, because it does not tell the whole truth about debt financing. It was not that long ago that we saw huge issues with companies like Enron that tried to push items off the balance sheet. I realize that Enron had deeper issues, but the key point is the understanding of obligations.
Come the Apocalypse
"Total Trouble" (Topline, December 2010) describes a very good example of one kind of spreadsheet risk that is particularly relevant when a spreadsheet has become an embedded part of an operational business process, such as financial reporting. Instead of one person owning a spreadsheet from "cradle to grave" and knowing all of its potential weaknesses, the model is handed from user to user over the months or years that it exists in the business. Other risk examples include the ability to hide or misrepresent information (you would be amazed what conditional formatting can achieve) or having macro/VBA code that will still deliver a result even when it has picked up errors in the calculation.
In practice, most organizations allow themselves enough time to find and correct these problems. However, this takes a lot of time and effort, and with reduced resources there is always a danger that mistakes will slip through.
There is growing pressure from the audit community to attend to this risk — the Institute of Internal Auditors recently published guidance (GTAG 14), and comments have also appeared in PCAOB and FINRA reviews. That is why there is a new software sector developing called Enterprise Spreadsheet Management, which can automate all these checks and generate alerts as appropriate.
It is definitely worth watching this development, because despite the best efforts of financial-systems vendors over the years, there is no sign of reduced spreadsheet usage in business. To quote an old analyst comment, "Come the Apocalypse two things will survive: the spreadsheet and the cockroach. They deserve each other!"
That's What You Get
Main Street's view of the weak yuan is that China gains the advantage by taking away American jobs by keeping the yuan weaker than it should be ("Is a Trade War at Hand?" November 2010). Unemployment is a big issue, and also a political issue. Wall Street's concern is more about the profit and competitiveness of the company in the global market.
Since the Chinese make more products than they consume, there is a large trade surplus. China provides America with cheap goods. In return, the Chinese get a form of paper called the U.S. dollar. As the U.S. Fed is printing more paper, the paper in the hands of the Chinese government is worth much less in value. To keep the yuan weak, the Chinese government has to print more paper (the yuan) to keep the exchange rate stable. More Chinese paper (99% used in China) causes inflation (4% in October). Americans get cheap goods while inflation in the United States is less than 1%. The Chinese get some paper in hand, which is devaluing.
I don't think the appreciation of the yuan will help the U.S. job market. The yuan has appreciated 20% since 2006, but that hasn't helped U.S. employment or the balance of trade. In fact, a stronger yuan will help China in the long term.
Asia Finance Director
The Realities of Offshoring
Will foreign companies outsource/offshore to the United States because their own talent is being hired by American companies ("The Incredible Shrinking Finance Department," November 2010)? Cost savings in the United States may not factor, given the expense of late fees and penalties if outsourced/offshored work is processed in an untimely manner. Then add restructuring, severance, and new-hire costs. Is sending the general ledger offshore really a good idea? It's like posting your checkbook on an Internet blog. I think the United States is being shortsighted.
Des Plaines, Illinois
While consolidation may be very effective in reducing a company's accounting department (and increasing its bottom line), it's not too bad of a hit knowing that some of what's being consolidated is to U.S. shared-services companies. But why can't there be more shared-services companies here in the United States and shift more [of this work] here, rather than abroad? We Americans have the advantage of not only speaking the language, but also understanding American culture and innuendo, which has been overlooked.
When you say that salaries are 80% lower in India than in the United States, what are you comparing them with? New York salaries pre-2008? Salaries have also come down substantially here. There are a lot of people who haven't worked in a while who would work for (much) less than their previous salaries. Why don't we give Americans a chance?
President and CEO
Direct Approach Solutions
Irvington, New York
One Step Up
The number-one problem in C-level job hunting is how to get interviews with the hiring authority ("Cold, Cruel World," November 2010). The most effective solution is to differentiate your candidacy by making an offer to be of service based on what you can do for that hiring authority.
Everyone has experience, and that is what your competitors will all be trying to sell, but you should be marketing the benefits and advantages you can bring to the table as the result of your experience. The most effective tool for doing this is a letter that you send directly to the hiring authority. You will be far more likely to be invited for an interview if you let him or her know what you can do to help the company reach its financial goals faster. Include a simple résumé, because you want the decision to invite you to interview to be based mainly on the contents of your letter, rather than on your present circumstances (industry, title, age, and so on).
Job Hunter's Consultant and Strategist