In a meeting next week, members of the Financial Accounting Standards Board (FASB) are expected to begin crafting a plan for improving corporate pension-plan disclosure under FAS 87.
According to Dow Jones Business Wire, the standards-setting body will reportedly discuss whether companies should be required to disclose more information about their pension assets and their methods of forecasting market returns on assets. FASB is expected to discuss ways of improving pension-plan disclosure rather than overhauling the rules completely.
“I’m going to be asking the board to agree with a framework that we’ll be using,” said Peter Proestakes, head of FASB’s pension effort. “It’s not a meeting that’s going to dive right in and decide on specific disclosures.”
Proestakes will likely identify various areas of pension reporting that could use some improvement—among them, treatment of expected rates of return on assets, corporate cash flow, and pension cost, according to Dow Jones. Under current rules, pension costs can be parsed—and often buried—in a company’s SG&A. What’s more, employers are only required to disclose details related to pension assets once a year.
Current accounting principles that let companies take some assets and liabilities off their balance sheet and amortize them over time as income or expenses are raising particular concern. This treatment allows companies to report expected returns on assets rather than actual losses or gains.
FAS 87 began to draw increased scrutiny late last year when a number of companies reported their plans were underfunded—sometimes by billions of dollars.
A number of companies, including GM, Ford, and IBM, have announced in recent earnings statements that they would contribute large sums to bolster their funds. In some cases, the pension-plan contributions have had an impact on earnings.
SEC Fines or Traffic Tickets?
Yesterday the Senate voted to give the Securities and Exchange Commission increased powers against corporate wrongdoers.
If approved by the House of Representatives—and signed by President Bush—the legislation would allow the SEC to impose harsh fines on lawyers, accountants, and corporate officers and directors without first obtaining approval from a federal judge. It would also make it easier for regulators to subpoena financial records without tipping off the target of an inquiry.
Currently the SEC must file a civil action in federal court to seek the return of ill-gotten gains and impose civil penalties and interest against securities violators (except in cases involving broker-dealers and investment advisers).
The proposal, if passed, would empower the SEC to levy fines of $100,000 to $2 million per violation. That’s a considerable step up from the current range of $6,500 to $600,000.
Backers of the legislation say the civil administrative fines currently imposed by the SEC do not act as a deterrent to corporate executives—some of whom make upward of $100 million a year.
The SEC is already channeling revenues from fines into a new restitution fund for cheated investors. That fund was created by the Sarbanes-Oxley Act, which was passed in July.
Last year a congressional study concluded that internal weaknesses were stanching the SEC’s ability to collect fines from corporate wrongdoers, netting only 14 percent of the $3.1 billion sought from 1995 to November 16, 2001, according to Reuters.
In an interview with the New York Times, the bill’s co-author, Sen. Carl Levin (D-Mich.), claimed prior efforts to pass similar legislation had been curbed by former Texas Republican senator Phil Gramm. Levin’s provision reportedly won support from two moderate Republicans (Charles Grassley of Iowa, chairman of the Senate Finance Committee, and Richard Shelby of Alabama, chairman of the Senate Banking Committee).
“This is a very significant additional tool for the SEC,” said Levin. “The existing fines are so modest, they are just like traffic tickets in some cases.”
So Much for the Recovery
A new survey conducted by the Business Roundtable found that executives at top U.S. companies expect a weaker economic performance this year than last.
What’s more, many are anticipating payroll reductions in the next six months, as well as a reining in of capital spending, the survey found.
“This survey reflects that CEOs are more concerned about the weakness in the economy than they were six months ago,” said John Dillon, chairman of the Business Roundtable and CEO at International Paper.
The Business Roundtable, whose member companies have a combined workforce of 10 million employees, said U.S. executives expect gross domestic product to increase 2.2 percent this year. In 2002, U.S. GDP rose a modest 2.4 percent
While 56 percent of the respondents said they expect sales to rise in the next six months, few expect to hire new workers. Just 9 percent said they expect to increase payrolls in the coming six months, while 45 percent expect to let workers go.
Equally worrisome: 27 percent of the executives surveyed said they plan to reduce their investment spending in the next six months, while only 18 percent expect to increase capital outlays.
Ariba: Well, One Was Right
On Thursday, software maker Ariba restated or adjusted every financial statement it has issued since the company went public—save one. The company’s management blamed the rejiggering on accounting errors, dubious partner deals, and questionable payments for chartered airplanes.
The Sunnyvale, California-based Ariba, which went public at the height of the dot-com boom in 1999, is currently under SEC investigation.
As a result of an internal accounting review, Ariba management said it restated the company’s results for the fiscal years 2000 and 2001 and for the quarters ending December 31, 1999, through June 30, 2002. Ariba also adjusted its preliminary financial statement for the quarter and fiscal year ended September 2002, and for the quarter ended December 31, 2002.
That means just one of Ariba’s financial statements—covering the company’s first quarter as a public company—was accurate.
Company management said the restatement increased the company’s net loss by $9.8 million in 2000 and by $14.1 million in 2001. For 2002, it said the adjustments stemmed loss by $22.1 million, but increased fiscal first-quarter 2003 loss by $2 million.
- Trading of shares of ImClone has been halted. The action follows an SEC investigation into the company’s failure to pay taxes on stock options and warrants exercised by former CEO Samuel Waksal. Reportedly ImClone may be on the hook for as much as $60 million—not including fines and interest. It also appears likely that ImClone will have to restate earnings after Waksal’s bill is settled. Company management has already said financial statements will not be ready by April 15, as it had previously promised.
New York State Attorney General Eliot Spitzer is suing Wal-Mart Stores for allegedly selling toy weapons that could be mistaken for real firearms. The suit seeks to stop the retailer from selling toy guns in New York State. Spitzer claims Wal-Mart’s guns violate a state law requiring them to bear distinctive orange markings.
- SEC chairman William Donaldson testified this week before the Senate Appropriations Commerce Subcommittee on various topics, including the SEC’s proposed $842 million budget, the status of lawsuits against Enron Corp., and the outlook for the hiring of a Public Company Accounting Oversight Board (PCAOB) chairman. Donaldson also expressed concern over the valuation of stock options. He backed FASB’s commitment to come up with a formula. “People are going to see your desires [for stock-option expensing] happen,” Donaldson told Fritz Hollings (D-S.C.).
After testifying, Donaldson told reporters that the SEC is close to a settlement with Wall Street investment banks, which would end investigations into alleged conflicts of interest among analysts. “We are pressing very hard to get this done,” Donaldson reportedly said. Federal and state regulators announced the broad outline of a settlement in December.
Donaldson also said the SEC is close to selecting a new chairman for the PCAOB. He declined to identify who the candidates are, but did say: “It’s a short, short list.”