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Does the FASB need to step back and simplify?

Having been involved in accounting for over 30 years, I have seen quite a few changes in accounting requirements, all enthusiastically introduced to “help the reader understand the financial status of a company better.”

I have to say that I believe the opposite is happening. Reading (interpreting) accounts is getting harder to do, as more and more intricate rules are introduced. In just the last 20 years, we have seen significant changes, including the introduction of stock compensation standards, revised fair value accounting, rewrites of revenue recognition rules, to name just a few. The changes have become intricate and mind-numbing.

There’s little sign of it stopping; although recently the FASB announced it will be focusing on reducing complexity and promoting simplification in its accounting standards, the Board has taken no meaningful action to date to do so. Board members have stated they want to simplify how inventory is measured and eliminate the need to disclose extraordinary items from income statements, but these pale into insignificance when compared to the revamped revenue recognition rules and the new operating lease accounting rules likely to be introduced too.

The bottom line is that unless you have a sophisticated understanding of accounting, you probably are unable to fully understand the accounts and what they mean to the health of the business. I don’t believe I am the only one who thinks the rules are going too far, and I understand sophisticated accounts! Every time I listen to a public company announce its quarterly financial results, I hear the CEO or CFO announce their earnings, and then they follow it with a pro-forma result, usually described as an “adjusted EBITDA,” which is to them a more meaningful result to disclose to their investors. Absolutely every company will back out stock compensation costs and other non-cash charges to get to a baseline cash-based result. Observers who trend these revised numbers on a quarterly basis can probably get a more meaningful trend of financial performance of the company and can make more meaningful decisions affecting their investment than if they tried to follow along with the pure GAAP figure.

I’m not saying cash-based accounting is the way to go. That is accounting at its simplest but that, too, doesn’t give a true picture of a company’s financial health. The reality is a simplified disclosure process is in desperate need. Maybe if this was introduced, companies would stop releasing pro-forma results, and I wouldn’t keep being asked to interpret accounting results into meaningful information. Seeing the proposed new rules on the horizon, it looks like it’s going to get worse before it gets better, which is unfortunate.

Until we see more progress, I expect to hear more and more complaints that financial statements are becoming more difficult to interpret. That to me is doing the U.S. accounting profession a major disservice.

Stephen Ambler is a director at RoseRyan, where he manages the development of the firm’s “dream team” of consultants. His interim CFO stints at RoseRyan have included a social media company and the management of the financial integration process at a company acquired by Oracle. He previously held the CFO position for 13 years at Nasdaq-listed companies. 

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How the new revenue recognition standard may affect your company

We’ve been hearing about it for years. Finally, the result of the joint project between the FASB and the IASB to update and consolidate accounting standards for revenue recognition into one global standard is just about here. They’re expected to issue it by the end of this month.

This is when the fun begins. While there is time before companies have to issue financial statements under the new standard (which we’ll see in the first interim period of 2017 for public companies with fiscal years beginning after December 15, 2016), they will need to disclose the expected impact of the new standard right away. And they will need to be tracking transactions under the new principles beginning in 2015.

The biggest change is the shift from industry-specific guidance to the application of general principles across all industries. Companies will need to re-think how revenue will be recognized for their transactions, and in some cases they will be able to record revenue earlier than they do now. Here are my thoughts on what our clients should be considering in the months ahead.

If you work at a life sciences company
The revenue standard applies to all contracts with customers, including some collaboration arrangements for life sciences companies if they are in effect transactions with a customer. Collaborations might fall outside the scope of the new revenue guidance if the collaborator or partner is not in substance a customer, such as when a biotechnology company and pharmaceutical company have an agreement to share equally in the development of a specific drug candidate as well as the risk that comes with it.

Another change that will arise with the new standard is that variable consideration (such as milestone payments) may be included in the transaction price allocated to deliverables as long as the company has relevant experience with similar performance obligations and, based on that experience, they do not expect a significant reversal in future periods. Changes to these estimates will have to be allocated to performance obligations based on that initial allocation, unless a payment relates to a specific element and is consistent with the amount expected to be entitled for performance of that obligation.

When life sciences companies license their drugs to commercialization partners, they can estimate and recognize sales-based royalties when the partners’ subsequent sales occur and will not have to wait, as they do now, until each partner has reported such sales. These estimates can include only the amount that has a low probable risk of significant reversal.

Another change that will result in earlier recognition of revenue for life sciences companies is the recording of sales of new products when they ship, minus the estimates for returns. Currently, companies have to delay recognition on a sell-through basis if a pattern of return has not been established.

If you enter into license agreements
The new standard’s emphasis on when control transfers to the customer may change the timing of revenue recognition on licenses. A license is the right to use an entity’s intellectual property, such as software and technology, patents, trademarks, copyrights, music and movie rights and franchises. In some cases, a license is a promise to provide a right, which transfers at a point in time. In other cases, it is a promise to provide access to a right that transfers to the customer over time, such as if a licensor has continuing obligations under the arrangement that do not otherwise qualify as separate performance obligations, or if the licensor must actively make the IP available on a continuous basis during the license period, or if the licensee benefits from changes over time.

If you have software arrangements
For software arrangements, VSOE (vendor-specific objective evidence) guidance is no longer required, resulting in earlier recognition of revenue for licenses that lacked it for undelivered elements, including future upgrades, additional product rights or other vendor obligations. Companies still need to allocate revenue to each of the deliverables in the arrangement based upon best estimated selling prices (BESP). It simply allows for alternate methods of determining BESP beyond VSOE.

If you sell software as a service
You will need to assess software license and hosting services to determine if they represent distinct performance obligations. It is unclear what criteria will apply to determine whether a typical SaaS arrangement will qualify for service accounting treatment (over time) or if the software element should be recognized separately (at a point in time).

In addition, provisions entitling the customer to a refund if undelivered elements are not successfully provided — an issue that currently delays recognition — will be a part of the estimate of variable consideration, resulting in earlier revenue recognition in some arrangements.

If you’re a contract manufacturer
In contract manufacturing situations, the timing of revenue recognition will no longer revolve around when units are delivered but instead when a service is performed and when the control of goods are transferred to the customer over time. This change may require contract manufacturers to modify their systems and processes to recognize revenue in the new way.

If you work in the technology sector
Distributors and resellers tend to require price protection or right of return from manufacturers of technology products to protect themselves from obsolescence and price reductions. Manufacturers currently delay recognition of revenue from these transactions because of the possibility they’d have to give money back or accept product returns. Under the new standards, fees that are currently not considered fixed and determinable can be recognized to the extent the company can estimate the amount that has a low probable risk of significant reversal. This will result in earlier recognition of revenue for manufacturers.

When companies license their technology for use in tangible goods or services, they can recognize the royalties when sales or usage occurs to the extent they can estimate the amount that won’t reverse (subject to the constraint on variable consideration). Today, recognition is typically delayed until such sales are reported by the licensee.

What everyone should do in the meantime
These are just a few examples of impacts in certain industries. When the new standard is released, we encourage you to evaluate its impact on your company and business model. Don’t underestimate the subtleties the new principles guidance will change in revenue recognition. Without bright-line rules, there will be room for judgment but also room for differences in interpretation and implementation, particularly between you and your auditor. Let the fun begin!

Diana Gilbert has been a member of the RoseRyan dream team since 2008 with almost 30 years of professional experience. She excels at technical accounting, revenue recognition, SOX/internal controls, business systems and process improvements.

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How the new revenue recognition rules should help global businesses

One of the issues global companies have always faced is how to manage a global sales force in an environment where local accounting rules for revenue recognition vary. Countless times, sales teams have vented to me because U.S. GAAP doesn’t allow us to recognize revenue when IFRS does. My response has always been that accounting rules should inform us, but they don’t define good business. Ultimately, the sales team needs to negotiate the best deal for the company (only one consideration of which might be whether or not we can recognize revenue), and we accountants will advise them on the best way to structure the deal and, ultimately, figure out how to account for it.

The new revenue recognition rules, expected to be issued simultaneously by the FASB and IASB in Q1 2014, will create a new global environment with enhanced comparability across industries and geographies. Global companies will be operating on the same playing field, which should give them some relief. OK, sales guys—time to stop venting and focus on making good business deals.

Judgment is a double-edged sword
The beauty of the proposed new rules is that they allow for judgment. However, that’s a double-edged sword, since filers have abused “judgment” in revenue recognition in the past and caused regulators (the SEC, EITF, AICPA, et al.) to respond by drawing “bright lines” in their issuance of “clarifying literature” (staff accounting bulletins, technical practice aids, EITF interpretations) to provide consistency in accounting and reporting where the FASB hadn’t drawn those lines. It will certainly be interesting to see how well regulators embrace this principles-based approach to accounting for revenue with this complete converged rewrite of international accounting standards.

Under the new revenue recognition rules, the five basic steps for accounting are:

  1. Identifying the contract with the customer. (Yes, sales team, you still need to include all of the deal in the contract. We still don’t like verbal side arrangements.)
  2. Identification of the separate performance obligations in the arrangement. (Similar to current multiple-element arrangement rules, these don’t need to have a price spelled out in the contract.)
  3. Determining the transaction price.
  4. Allocating the transaction price to the separate performance obligations in the contract. (This will require significant judgment, thus the need to thoroughly document the basis for your assumptions.)
  5. Recognition of revenue when each separate performance obligation is delivered.

The latest clarifications from redeliberations have added back a requirement for collectibility to be probable—and note that this is the one minor nonconverged compromise point in the standard; there are minor differences in the FASB and the IASB definitions of “probable.”

For those who aren’t yet familiar with how the new rules will roll out, we are expecting the new standards to be effective for fiscal years beginning after December 15, 2016. For most calendar-year companies that means 2017, and one year later for private companies. With a retrospective presentation of prior periods, companies will be considering and evaluating the new revenue recognition rules for 2015, 2016 and 2017 transactions—which gives them 2014 (one year—next year!) to figure out how they’re going to track this. Alternatively, companies may elect to apply a modified retrospective approach by recording the cumulative effect of the change and providing supplemental disclosures for comparability of prior periods.

Whichever approach companies take, it will be a significant endeavor with complex arrangements. This change will require support from more than just the accounting team. For example:

  • Evaluating and refining IT systems to support the new revenue recognition process and considerations
  • Updating sales team tools and legal business forms
  • Enhancing accounting processes to document the basis for judgments made
  • Designing internal control procedures to address new risks under the new rules

At the end of the day, the global convergence of revenue recognition rules should provide more flexibility in how companies do business. But they don’t remove their responsibility to ensure consistency of accounting and reporting across industries.

Editor’s note: ComplianceWeek interviewed Diana for its article on the new rev rec rules in today’s edition. (Subscription required.)

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Booms, busts and finance upheavals: RoseRyan’s CEO looks back on 20 years

When I cofounded RoseRyan (then known as Macias & Ryan) in September 1993, the Internet was just taking off. The word “global” had a different connotation. Cell phones (if you even had one) were the size of bricks. The “cloud” was in the sky. In many ways, it was a simpler time for accounting and finance.

In the 20 years since, we have weathered two economic downturns and countless changes in accounting rules, governance and oversight. Corporate abuses gave us Sarbanes-Oxley, AS2 and AS5, the PCAOB and the Dodd-Frank Act. Business changed, and continues to change, at exponential rates of speed. We have a truly global economy, blazing technology advancements and exciting new ways of doing business.

This all means that the staid and boring world of accounting has become anything but. We have addressed changes with far-reaching implications in the areas of stock-based compensation, accounting for derivatives, business combinations, fair value measurements, codification and accounting for leases, and we’re now facing brand-new ways to look at recognizing revenue. (FASB promises it will be final any day now.…)

CFOs and their teams have had to step up their game. In addition to understanding and implementing new and complex accounting principles, they are rightfully taking on a more strategic role as leaders in the business. No longer are CFOs expected to be just the keepers of historical financial statements and budgets; they also need to understand their business and market trends, and strategically and systematically increase the value of their company. Not easy tasks, but certainly challenging and exciting in today’s dynamic market.

While the finance needs of Bay Area companies have changed, the fundamentals of RoseRyan’s business have not. As in 1993, in 2013 we are dedicated to attracting and retaining top-notch professionals, and to providing an environment where our consultants are challenged but also able to enjoy a personal life. This allows us to provide exceptional finance and accounting solutions to our clients, giving them the right people with the right skills at the right time.

No matter what the level of their assignment, every RoseRyan consultant rolls up their sleeves to get the job done—and they look beyond the cubicle to provide best practices, advice and objective opinions derived from their years of experience. We call ourselves “gurus” because we strive to be leaders and mentors for our clients and one another.

We’ve worked with more than 700 clients at RoseRyan, and they have made for an exciting 20 years. It has been a great time to work with companies in the technology and life sciences industries, participating in the myriad of changes that have taken place and watching companies go up and down—and sideways. What’s most exciting is that we are often with clients through their corporate life cycle. For example, I started with one client as CFO when they were in an incubator. We shepherded them through two-plus years of fast growth as their outsourced accounting department. We later helped them with revenue recognition issues, stock-based compensation and audit support. Finally, as they neared their exit, we helped with financial forecasting, due diligence and integration with the eventual acquirer. We were with the company for over eight years, and it was rewarding to understand their business, walk with them through the ups and downs, and celebrate their successes.

RoseRyan would not be where it is today without our amazing clients or our consultant gurus. I am very proud of all of them, and I am pleased that RoseRyan helps both clients and our employees thrive. They are a huge part of why I think the Bay Area is a great place to work, to learn, to live. I give heartfelt thanks to all who have made the past 20 years possible. We’re looking forward to the next two decades!

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Stock compensation rules mask true operating performance

The other day a client asked which current accounting requirement is the worst from a U.S. GAAP standpoint. There are a few poor standards out there, but to me the answer is easy: FAS123R, now known as ASC 718, accounting for stock compensation. It’s been around eight years, and it’s not getting any better with age!

The idea of FAS123R, which replaced stock compensation rules under APB 25, is that all stock grants have a value to the employee, and that should be accounted for as compensation. Consequently, on each stock option grant, there’s a charge to expenses over the vesting period of the grant. Under APB 25, a charge arose only when the fair value of the grant was greater than the grant price, so most grants did not give rise to a charge. Under FAS123R, the expense varies depending on a number of factors, the two most important of which are the fair value of the stock at the time of grant and the volatility of the stock.

Here’s why I think the FAS123R is a bad accounting standard:

Inconsistent and arbitrary outcomes. Take two similar companies: Company A’s stock price is $10 and Company B’s is $5. Both grant an employee 1,000 stock options vesting over 4 years. All else being equal (stock price volatility, expected life of the stock, dividend yield and risk aspects), under the current methods, Company A’s amortized stock charge is double the charge for Company B. That makes no sense. Why does a higher stock price at the time of grant give rise to a bigger charge? If anything, the grant in Company B should result in a bigger gain, as any gain will be a higher percentage of its stock price than for Company A.

The bottom line: the charge is misleading and arbitrary no matter how you look at it. If the stock price rises, that is the real compensation, but the true gain is not reflected anywhere.

In the same vein, if the stock price stays flat or decreases, the employee would have no gain and would not exercise the option. In effect, the grant recipient is not receiving any compensation, so there shouldn’t be a charge to the accounts as FAS123R requires.

Sticker shock. The inclusion of the charge can make a good operating performance look average or poor, and the charge can vary a lot from period to period based on what is happening with the company’s stock price.

Doesn’t reflect reality. You have to ignore the charge to get a good view of the underlying business. Analysts back the actual and expected charges out of their models so they can look at them on a cash basis. If they don’t need to see the charges, why do we? More and more companies are presenting adjusted EBITDA in their earnings press releases. These calculations back out the FAS123R charge for exactly the same reason analysts do—it’s a meaningless charge that mathematicians like but that users of accounts don’t need.

Most private companies ignore it. Who can blame them? There is no value added in accounting for it, and all it does is cost money in systems, review of the numbers and so on. An audit adds even more expense.

It makes budgeting hard. Have you ever put together an annual plan with FAS123R charges in it and then tried to hold people accountable to their budgets? It’s not easy, and most people won’t do it.

If you do want to do it (and it makes sense to have budgets that align to your financial accounts), to estimate the charge you need a crystal ball to estimate your future stock price at the time of the future grant, which you then need to combine with your estimated stock grants and headcount changes, as well as the residual charge from previous grants that are still vesting.

As a CFO, if someone asked you what your stock price will be in 6 months’ time you’d never answer (unless you enjoy SEC investigations), so why make this prediction internally to calculate the expected charge? And it’s impossible to hold managers accountable for their actual charges against the budgets for that expense. It’s also not wise to tie compensation to managing budgets if you have FAS123R in the compensation—at the end of the year the manager will be very happy or very unhappy, depending on which way the variance goes based on events totally out of their control.

So what’s the solution?

I believe FAS123R in its current form should be scrapped, and that only real gains, at the time of exercise, should be accounted for, and only in the notes to the accounts. By removing that expense from the accounts, you can then analyze, assess and compare companies based on their true operating performance, not some arbitrary performance.

Unfortunately, I don’t see any changes taking place soon—but the fact that more and more companies produce numbers that exclude FAS123R charges says that the FASB has gone too far in the accounting requirements, and that accounts are becoming more meaningless when presented under GAAP. Getting rid of FAS123R charges from the income statement would be a good first step to more meaningful accounts.

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Latest revenue recognition guidance: throw out the recipe box

It’s been more than a decade in the making, but the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) are in the final throes of issuing a global revenue recognition standard to replace all others, including the mirage of industry-specific guidance the United States follows today. The new guidance is “principles-based,” so you’re not going to find specific rules or instructions—no more recipes for that special occasion. Instead, the new guidance is about substance, judgment and transparency.

The core principle is “recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” The FASB provides a five-step process to achieve this: (1) identify the contract with the customer, (2) identify the separate performance obligations, (3) determine the transaction price, (4) allocate the transaction price and (5) recognize revenue when the performance obligation is satisfied. The objective: enable companies to recognize revenue based on the substance of the transaction with the customer, while providing enough guidance to help ensure consistency with other companies. This is a difficult balance, as evidenced by how long this guidance has been in the cooker.

Lots of judgment required, but no measuring cup
Principles-based guidance requires judgment—lots of judgment! Have you entered into a new contract with a customer or modified an existing contract? Which of the performance obligations can or should be separated? Not all will qualify. Special terms and pricing arrangements can create variability in the amount of revenue a company is entitled to receive, and probability has to be assessed. Companies will need to estimate the stand-alone selling price for each performance obligation—that means you too, software companies. Performance obligations are satisfied when control is transferred to the customer, but for companies that provide services, this is more complicated—services don’t come in a box, so delivery is more theoretical and an appropriate measure of progress needs to be evaluated. Finally, revenue has to be “reasonably assured” to be recognized. That’s a qualitative threshold—no measuring cup required.

Disclosure is hot: share your secret sauce
And it should come as no surprise that where significant judgment is applied in accounting, especially for revenue, transparent disclosure is vital to understanding the financial statements. At the bottom of the statements the footnote should read, “See accompanying notes to the financial statements … seriously.” The level of disclosure continues to be a hot topic as the guidance makes its way through the comment process, and the latest exposure draft also includes enhancements to interim disclosures as well. Companies will need to disclose their secret sauce, providing qualitative disclosures, including a description of the judgments involved, and also quantitative disclosures, which may require additional financial system reporting requirements. While it may be more difficult for the SEC to question the judgment applied in recognizing revenue, you can bet that they will be all over companies that do not provide adequate disclosures. For companies currently employing a “less is more” disclosure process, this will be a dramatic change.

Want to see what’s cooking? Download a PDF of the latest exposure draft from the FASB website. Comments are due March 13, 2012, and a final standard is expected in the second half of 2012. The proposed effective date is 2015.

Think you have time to prepare?
Think again. In its proposal stage, the guidance requires full retrospective application, so public companies presenting three years of financial statements will also have to present 2013 and 2014 for comparative purposes. Don’t let this overwhelm you—give us a call to see how RoseRyan can help make the transition easier.

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IASB vs. FASB: What’s the difference?

The SEC is expected to issue a recommendation before the end of the year that may require publicly held companies to adopt international accounting standards issued by the International Accounting Standards Board (IASB). If this happens, it’s not clear how the IASB and the Financial Accounting Standards Board (FASB) would work together to support and issue future international accounting standards. In a recent speech, FASB chair Leslie F. Seidman stated that FASB “should continue to have a strong role in influencing what goes on the international agenda, the process by which these issues are analyzed, the level of implementation guidance provided, and the outreach that is conducted in the United States.” Although IASB and FASB are similar—both establish and improve standards of financial accounting and reporting—there are some distinct differences.

The FASB is part of the Financial Accounting Foundation (FAF), which is overseen by a board of trustees, and is independent of all businesses and professional organizations. It is funded by fees paid by issuers. The IASB is overseen by trustees as well, but it is accountable to a Monitoring Board of capital market authorities. It also is funded by market participants, but is funded by relevant regulatory authorities as well.

The FASB currently has seven board members appointed by FAF’s board of trustees, and each may serve up to two five-year terms. The IASB currently has 15 members appointed by trustees through an open and rigorous process that includes advertising vacancies and consulting relevant organizations.

The biggest difference: post-implementation
Probably the most distinct difference between the two organizations lies in the area of post-implementation of standards. The FASB has no formal process for reviewing the effect of a newly issued accounting standard. Post-implementation issues can be dealt with through an SEC action (Staff Accounting Bulletin) or an American Institute of Certified Public Accountants action (EITF), which may result in an update to the Code. The IASB, on the other hand, has a formal, two-year post-implementation review on all standards it issues.

Last, the operating budgets for 2011 for these two organizations are vastly different. For the FASB, its budget is $53.3 million USD. For the IASB, its budget is £20.1 million (approximately $31.4 million). These amounts are incongruent given the relative size of each organization’s board.

What does it all mean?
We don’t really know how the move to international standards, with the attendant IASB oversight, will affect U.S. public companies. The IASB does have the same purpose as the FASB, but I would note the IASB has more structure when it comes to evaluating new accounting pronouncements. I think this additional structure is something public companies would welcome. It also seems that the IASB is able to operate in a streamlined manner!

 

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On the menu: IFRS and “diet” IFRS

Ever thought moving to International Financial Reporting Standards (IFRS) would make financial reporting easier for small private companies? Think again. In 2009, after several years of due diligence, the International Accounting Standards Board issued a less-robust set of accounting guidance—kind of a “diet” IFRS—for small and medium-size entities (SMEs). Just recently, the IASB requested feedback on draft implementation guidance on IFRS for SMEs. Progress.

As for the United States, it’s a slow grind. We have long been considering whether there should be a separate set of accounting guidance for private companies, sometimes referred to as “baby GAAP.” The FASB established a Small Business Advisory group in 2004 and a Private Company Financial Reporting Committee in 2007, both of which were supposed to help develop new standards, giving consideration to private companies. Neither has been very successful. In 2009, the Blue Ribbon Panel was formed, composed of members of the FASB, American Institute of Certified Public Accountants, and National Association of State Boards of Accountancy to address private company reporting needs. The panel issued a formal report last January, and based on those recommendations, the FASB has been taking steps to further address the need. Earlier this month, the Financial Accounting Foundation published a plan for addressing private company financial reporting, but the proposal doesn’t include establishing a separate board for private companies, as suggested by the Blue Ribbon Panel. And so we wait. Ho-hum.

But now (at last) the much-anticipated SEC decision regarding incorporating IFRS into the U.S. reporting structure is expected by the end of the year, which may have private companies heaving a sigh of relief. What’s different about the less-robust IFRS guidance? For one, they’ve eliminated topics that aren’t relevant for smaller entities, including EPS guidance, quarterly financial reporting and operating segment disclosures. In addition, where full IFRS guidance allows accounting policy choices, IFRS for SMEs allows only the easier option. Probably the most notable difference is simpler standards for recognizing and measuring assets, liabilities, income and expense items, such as amortizing goodwill and expensing all borrowing and R&D costs. Along with simpler standards come fewer disclosures too! And to further reduce the burden to smaller companies, the revisions to these IFRSs are limited to once every three years—an accounting guidance sabbatical, if you will. Nice.

IFRS transition guidance for SMEs is still a work in process, and that guidance may limit some of the options, but nonetheless would still mean less accounting and reporting rigor by private companies. So for U.S. private companies, relief may come from the incorporation of IFRS, before “baby GAAP” ever comes to fruition … and unexpected benefit of IFRS.

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Seminar: Managing Risk—Accounting and Currency Issues for Life Sciences Companies

Please join us September 27 in San Carlos for a free seminar tackling two pressing topics affecting biotech and medical device companies: new accounting rules and managing foreign exchange risk.

New accounting rules are here—and more are coming
This year the Financial Accounting Standards Board introduced several new accounting rules that affect life sciences companies—and FASB has many more changes planned. Maureen Earley, a RoseRyan technical accounting guru, will review the practical implications and give you an inside look at what’s on deck.

International clinical trials bring foreign currency risks
Managing foreign currency exposure on international clinical trials is becoming increasingly important for life sciences companies. Nick Bennenbroek, a Wells Fargo economist and head of the bank’s currency strategy, will discuss where things are heading and how best to manage foreign exchange risk.

The program will be held 8–10 a.m. at Wells Fargo Insurance Services, 959 Skyway Road, San Carlos. It includes breakfast and time for networking.

 

Register here.

Need more information? Please contact Eve Murto.

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A mismatched set of semi-global accounting standards—was that our goal?

Conceptually, a single set of high-quality global accounting standards sounds great: every company in every country follows the same rules and reports financial information in the same light. And with a growing number of countries adopting International Financial Reporting Standards (IFRS), it’s no wonder that IFRS is touted as “the” set of standards that can help us accomplish this goal. But the design and execution of this concept has presented insurmountable challenges, and the solutions being offered up leave much to be desired in terms of accomplishing the original goal … a single set of standards.

Adoption turns to endorsement. The SEC’s proposed roadmap issued in late 2008 considered adoption of IFRS, while the most recent SEC staff paper issued last May is considering an endorsement protocol, which would allow the FASB and SEC to cherry-pick the standards issued by the Internal Accounting Standards Board (IASB) and possibly supplement them with additional guidance.

Convergence becomes less converged. The FASB and IASB have been working together to converge the guidance of newly issued standards since they entered into the Norwalk agreement in 2002. However, some of the boards’ first major joint projects, including stock-based compensation and purchase accounting, resulted in substantial convergence upon issuance of the final standards—most of the guidance is the same but key differences remain. While their respective drafts of the proposed revenue recognition guidance are very close (after more than 10 years of effort, I might add), there are a number of differences of opinion in terms of other standards in the works, including leases, consolidation and insurance contracts. Speculation is that the best we’ll get here is also substantial convergence … if that.

Input adds to confusion. In early July, the SEC held a roundtable session to help evaluate the possible incorporation of IFRS into the U.S. reporting structure. The roundtable consisted of three panels of investors, smaller public companies and regulators. The result: a very mixed bag of reactions. The investor panel generally supported incorporation of IFRS but raised concerns about consistency in the application of the IASB’s principles-based standards. The panel of small public companies said the costs of such a substantial change outweighed the benefits. And then there was the regulatory panel, which ranged from cautiously supportive to very much against IFRS incorporation.

The SEC is still expected to make a decision by the end of this year about whether to incorporate IFRS and if so, how and when. Although nothing has been decided yet, it appears we are headed toward IFRS—International Financial Reporting Sometimes.

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