Tuesday, July 18, 2006

All in the Numbers

The Federal Accounting Standards Board (FASB) has released its “Preliminary Views” on the work it has done so far with the International Accounting Standards Board (IASB) on financial reporting standards. The idea is to make financial reports more “user friendly,” that is to say, more usable. While the discussion is not specific to small cap companies, the end result of the joint project will filter down to every public company, large and small.

FASB and the IASB are particularly interested in developing compatible accounting standards that could be used for both domestic and cross-border financial reporting. Most companies operate in more than one country and engage in financing transactions in multiple jurisdictions. The process of complying with and then reporting under sometimes conflicting accounting standards can be expensive and time consuming. The end result may not provide equity investors or creditors with a clear picture of the issuer’s fundamentals. One of the issues under discussion is the reconciliation requirement for non-U.S. companies that use International Financial Reporting Standards (IFRS) and are registered in the U.S.

The two groups sat down earlier this year to forge a
Memorandum of Understanding on the joint project. So far they have managed to hammer out the first two chapters. One defines the objective of financial reporting and the other defines the qualitative characteristics of decision-useful information.

The IASB has also issued a
Discussion Paper, making it clear that while the two groups may be working in the same room, they come and go with their own perspective. Nonetheless, the project provides good practice for what FASB and IASB are ultimately after - a common set of high quality global reporting standards.

FASB is looking for
Comment Letters from users like us. One earnest soul pinged the group on the first day the document was available for viewing. The deadline to send comments to FASB's offices in Norwalk is November 2006.

Many public company officers look at accounting and reporting standards as sources of annoyance. Yet in the end every company stands to gain from better communications with investors and creditors, for whom the company’s merits are, for better or worse, “all in the numbers.”

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