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FASB & IASB: a match made in heaven or a recipe for disaster?

The lofty goal: To develop a single set of high-quality, international accounting standards that companies worldwide would use for both domestic and cross-border financial reporting.

Last month the FASB and IASB issued a progress report on their convergence projects. Although the boards have made a commitment to issue final standards for the items they consider to be most critical (financial instruments, revenue recognition, leases, fair value measurement and statement of comprehensive income), they have put four projects on hold—the most notable being the financial statement presentation project.

Exposure drafts have been issued for all of the priority projects, with revenue recognition currently getting the most attention. Why is this? Of the exposure drafts that have been issued this year as a part of the convergence effort, the proposed standard on revenue recognition from contracts with customers could arguably have the biggest impact on the most companies.

This exposure draft proposes a single principles-based model (we’ve heard it a million times—we’re getting away from a rules-based model!) under which revenue is recognized as the performance obligations in contracts are satisfied.  The obligations are deemed satisfied when control of the promised goods or services is transferred to the customer. The final standard would replace all existing guidance, including all industry-specific guidance. Thirty-six technology companies provided comment letters to the boards during the commenting period deadline. In general, they support the proposed single revenue recognition model.

The following concerns, however, were noted:

  • Recognizing revenue based on an estimated transaction price in a contract that has a variable transaction price may be difficult to apply in practice.
  • Including credit risk as a factor in measuring revenue does not seem appropriate.
  • Retrospective application is a huge undertaking, where the cost of tracking and reporting could outweigh the benefits (two-thirds of those who submitted comment letters disagreed with the full retrospective application of the standard!).

Last month the IASB and FASB held four public roundtable discussions, both in the United States and abroad, to further understand the concerns about the items presented in the exposure draft. We should expect a final standard on revenue recognition by June 30, 2011.

This seems like quite a task for the IASB and FASB to undertake, and there are four other areas for which final standards are due to be issued during 2011 (financial instruments, leases, fair value measurement and statement of comprehensive income). Will the two boards be able to compromise? Will they listen to the concerns of the public?  Will the convergence of the IASB and FASB be a perfect marriage?

Only time will tell! We’ll keep you posted.

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XBRL tagging: lessons from the first wave

This past fall I attended a panel discussion presented by the SEC Professionals Group on detailed XBRL tagging. Overall it was very helpful and provided great insight into what other companies experienced for their first experience with detailed tagging.

The incredible workload surprised all of the panel members, who were primarily SEC reporting managers and controllers from high-tech companies that were part of the Group One XBRL. This first group had to prepare detailed tagged financial statements and footnotes (versus block tagging), so the panel included some of the first companies who experienced the joys and the trauma of detailed XBRL tagging.

Common pain points for these companies: the huge volume of work involved in the detailed tagging (an average of ~250 hours in prep/review/validation) in addition to their normal filing process; incredibly long turnaround times for changes from the printers (six to seven days in some cases); many errors in tags chosen by the printers; and subpar quality on work outsourced by the printers.

The lessons learned reflect my own work with XBRL: start the process early, and leave plenty of time for review; don’t rely on printers’ accounting expertise (you know your financials and footnotes better than they do); the responsibility for the accuracy of the XBRL filing resides with you, not the printer; and have a really solid methodology for tracking changes. Finally, do a test run to make sure the results meet your expectations.

Keep these things in mind, and things will go a lot more smoothly.

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Two days, 18 business plans and the winner is…

The week before last I participated as a judge for the finalists in this year’s 2010 Cleantech Open national competition. At first, the daunting task of reading 18 business plans (20+ pages each) in less than one week had me asking myself “Why I am doing this?” But once I started to delve into the plans, it became incredibly interesting to read about the various ideas and technologies that some very bright people have been working on.

A little history—18 finalists competed in the following categories: energy efficiency, air, water and waste, renewable energy, transportation, smart power and green building. Competitors came from five regions in the United States: California, Northwest, Rocky Mountain, Northeast and North Central. Each company was allotted 15 minutes to present their pitch to the 12 judges. Judges were then allowed 15 minutes for questions and answers. Finally, the judges gave five minutes at most of feedback to each company regarding their presentation and business plan. Times were strictly adhered to due to the packed two-day schedule.

Judging the finalists was much more difficult than assessing the semifinalists. All contestants were well prepared. Several have already sold products to customers and were able to demonstrate their products to the judges, including the electric vehicle! Many had products that can be used by people in their day-to-day lives such as the water purifying system from Puralytics (winner of the contest) and the automatic tire inflation system from Pressure Sentinel.

The judges were amazing and represented a variety of companies and backgrounds, including investors (VC and corporate), attorneys, finance, banking and government. All had extensive experience in the cleantech arena and brought that depth of experience to the judging. Criteria in judging included the opportunity for significant business return; exciting, potentially disruptive or “game-changing” sizzle; and sustainability.

All in all, the two days were fun and well worth the time and effort in judging. Go to www.cleantechopen.com for a list of winners and more information about each of the finalists.

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Tough choices: top cleantech finance pros

Last week we published the list of top 20 cleantech finance pros to watch in the coming year. I created the list after careful consideration and with great input from industry sources—but it was difficult to narrow the field due to ever-changing business models and wide expanse that cleantech covers, such as water, energy efficiency, solar, wind, biofuels, building materials, smart grid, transportation and energy storage.

These finance executives and their groundbreaking companies are making a big impact on cleantech, in California and beyond. We’re keeping an eye on them, and if you’re working in cleantech you will most likely be impacted by what these pros and their colleagues are doing. If you have any comments, please let me know at cvane(at)roseryan.com.

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Clean energy needs federal policy commitment, project funding

I attended the third annual Cooley Clean Energy and Technologies Conference November 2 in Redwood Shores, and there were several interesting speakers and discussions. The event focused on innovative models in business, financing, policy and regulation. Some of the highlights:

There is a huge potential for the reduction of emissions in global shipping using dozens of existing technologies—the estimate is a reduction of 500 million tons of carbon annually by 2020.

The solar industry globally is way down: global leaders Spain and Germany have reduced spending, a worldwide surplus of equipment has driven down prices, and smaller companies have merged or gone under. Now energy efficiency is the strongest cleantech growth engine.

One panel discussed the need for more creative ideas for funding to help start-ups gain cash flow to make it through the “valley of death” that follows the first round of angel funding, to get them to the next stage of additional VC or PE funding.

Another interesting comment, which most of the panel members agreed with, is that the government provides initial funding from grants and loan guarantees, but there isn’t a long-term policy commitment to see it through to fruition.

The panelists also believe that more government money should go to clean energy projects (such as infrastructure and the smart grid) and not just new technologies. This is where the jobs will come from in greater numbers. Personally, I think this is on target. The current national grid was designed many decades ago, and upgrading it is critical. This investment in our infrastructure would have an immediate effect on job creation and energy savings; it is also critical for our national defense.

Speaking of jobs, Clint Wilder from Clean Edge presented the annual jobs report for the industry. There are 3 million cleantech jobs globally, and 500,000 of those are in California. In fact, the Bay Area is ranked No. 1 in the country, followed by L.A. at No. 2, San Diego at No. 7 and Sacramento is No. 15. Four out of the top 15, that’s not bad!

The bottom line seems to be that to make an impact on the environment and creating more jobs, now and in the future, there should be more focus on using existing technologies, more project-based funding, and a long-term policy plan from the government and industry.

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Great clients + good food and wine = success

I’m happy to report that a great time was had by all at RoseRyan’s annual client appreciation party. More than 70 clients and RoseRyan folks gathered to toast success, network and enjoy being appreciated and pampered at Spalti’s in Palo Alto. Local wines were tasted, delightful appetizers were consumed, and good friends enjoyed catching up with one another. Thank you to everyone who attended, and we look forward to seeing you at next year’s celebration!

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Rev rec worries? Just give it time (and remember to breathe)

The new rev rec guidelines have made for some labor-intensive process changes in some of the client companies that we work for.

It took me back in time to the initiation of Sarbanes-Oxley (SOX) compliance and how it made stress levels skyrocket. Fears of the additional headcount that would be needed just to get the job done, what would happen if they didn’t comply, how they would disclose deficiencies and what affect that would have on the company, confusion about how to write a narrative or test plan and what’s a key vs. nonkey control.

Now, years later, working in the corporate governance line of business, I see an entirely different story. SOX has become so much a part of the fabric of the process within a company, that when a company is considering a process change, we actually hear “How will that affect the SOX testing?”

I think we would all agree that fear of the unknown is always greater than the fear of the known. As we work to make SOX controls part of our everyday life and the process becomes repeatable, the fear evaporates. The controls identified in the narrative have become part of the day-to-day process, employees are educated on controls and many companies have found that outsourcing SOX testing to companies like RoseRyan has been the right decision for their business.

This same approach will work for implementing the new rev rec guidance. Getting outside expert advice or implementation help, using some of the software tools that already exist (rather than re-creating the wheel) and looking for the simplest approach in implementation (not to mention taking a deep breath on a frequent basis), will all make the changes easier. And before you know it, you’ll be through the worst of it and it will feel like it was always a part of your process.

This just reaffirms how adaptable we all are. And isn’t it wonderful how time changes everything?

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Feds award $1B for R&D to small biotechs

The life science community has been anxiously waiting for the announcement of the awards for the $1 billion Qualifying Therapeutic Discovery Project program and the results are out!

Many Bay Area companies did quite well, receiving all or part of what they asked for; this was particularly true for smaller companies. Four of the five companies RoseRyan worked with to develop applications received grants ranging from $244,479 to $733,438. (As a finance professional, I have to ask, Why the odd amounts? So far, we haven’t got an answer to that one.)

The program, part of the health care bill, was designed to spur research and development at biotech companies with 250 or fewer employees through awards of tax credits or grants. According to the San Francisco Business Times, the Treasury Department received applications for about 5,600 projects. The Times published a partial list of Bay Area recipients, and you can see the full lists of recipients by state at the IRS website.)

Last June, my colleague Chris Vane and I spoke with about ten companies at a free consultation with BayBio, and did work for five. This involved helping them write or edit the grant and providing strategic advice, leveraging our prior grant submission work with the Department of Energy as part of our cleantech practice. These companies said it was very useful to sit down with us and talk with them about their strategy for writing grants. We played devil’s advocate, asking questions and helping them look at their business plan strategically.

There could be more grant opportunities cropping up in the future, and it never hurts to apply for a grant or other funding, because it presents an opportunity to take a hard look at your business and appraise why the work is important, where you want to take it and how you will get there.

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RoseRyan catches up with alumni

RoseRyan hosted its annual fall alumni event October 5, and it was a great night for wine tasting, yummy Italian appetizers and catching up with old friends and colleagues. I saw quite a few friendly faces at the after-work party at Spalti Restaurant in Palo Alto, and it was great to hear what’s new in their world.

We’re already looking forward to the next reunion of the extended RoseRyan family in the spring. These gatherings not only get us together to catch up and network with former colleagues, they also give our extended team a way to support one another.

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M&A–It’s baaack!

Of course, M&A never really went away, but other than the occasional blockbuster deal, there was definitely a lull in activity over the past few years. But here at RoseRyan we’re seeing a decided upturn in M&A activity, and that’s why we wanted to create Make a Match Made in Heaven, a RoseRyan guide to some of the more prevalent issues on both sides of transactions and tips on how to deal with them.

Our clients have been players on both sides of the table—some of our larger clients are in acquisition mode and several of our small-to-medium-size clients have been acquired. While helping clients negotiate the M&A process, I’ve discovered that a number of issues arise in almost all deals. Many times these issues are rooted in a common cause: the acquirer and the target company do not always understand what the other party wants or needs from the transaction.

You can download the guide directly here or from the Intelligence page of the RoseRyan website.

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