Emerging Issues for Finance Professionals

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Emerging Issues for Finance Professionals

• Philip B.Livingston
• President CEO
• Financial Executives Institute

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Background

• MBA - UC Berkeley
• CPA - Arthur Young Co
• Genentech Inc. - SEC reporting
• Kenetech Corp - first CFO job
• Celestial Seasonings - CFO,led 93 IPO
• Catalina Marketing - CFO, tech, NYSE

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What Well Cover

• Financial Reporting Hot Topics
• Audit Committee Effectiveness
• Future of the Finance Function
• Stock Compensation
• FEI Update

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Reporting Hot topics

• SEC earnings management initiative
• Business combination accounting
• International accounting standards
• Audit Committee Reforms
• Implementing FAS 133
• Selective Disclosure Rules

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Earnings Management
Lynn Turner SEC Chief Accountant
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Auditor Independence

• Auditor Independence
• Independence Standards Board
• Reducing the scope of services
• - systems consulting
• -internal audit
• - percentage cap of audit fees, selective
  restrictions or abolishment
• Financial conflicts
• Proxy disclosure of audit vs. non-audit services

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Selective DisclosureRegulation FD

• SEC concerned about disclosure of material
  information in analyst conference calls and
  meetings
• New rule effective October 23, 2000
• whenever a company discloses material
  information, it must make public
• whenever non-intentional disclosure is made, the
  company must make public within 24 hours

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Selective Disclosure

• Public disclosure includes
• filing the information with the SEC
• press release
• providing public access to the conference call or
  meeting
• Best practice publicly disclose any forecast
  updates

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SAB 101-Revenue Recognition

• Originally issued Dec. 3 1999 for year-ends after
  12-15-99
• Portrayed as interpretive only
• Has raised numerous questions
• Implementation date delayed twice
• Currently effective for Q4 2000
• QA document coming soon

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SAB 101-Revenue Recognition

• Revenue recognition criteria
• Persuasive evidence of an arrangement exists.
• Delivery has occurred or services have been
  rendered.
• Price to the buyer is fixed or determinable.
• Collectibility is reasonably assured.

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SAB 101Revenue Recognition

• Common Questions
• What is meant by Customer Acceptance when
  determining revenue recognition?
• How to account for certain multiple element sales
  arrangements.
• When does title pass in certain foreign sales
  arrangements?

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SEC Bulletin re Materiality

• Addresses the earnings management issue.
• The SEC very much wants you to consider the
  QUALITATIVE factors of such adjustments, not just
  the quantitative measures.
• SAB strives to eliminate INTENTIONAL bookings of
  erroneous immaterial items.

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Accounting for Business Combinations

• FASB vote to eliminate pooling
• two methods are problematic, want convergence
  with international standards, an acquisition an
  acquisition
• Exposure draft
• 20-year maximum life for goodwill
• Special income statement treatment of goodwill
• standard could be issued late 2000
• Annual goodwill impairment test being considered
  as alternative to amortization

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Business Combinations

• FEI position
• Retain pooling for true mergers
• Amortize ALL intangibles to the special line in
  the income statement, not just goodwill

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International Accounting Standards Committee
Restructuring

• New structure planned for 2001
• Board of trustees chosen with Paul Volcker as
  chairman
• David Tweedie of U.K. chosen as Board Chair
  Board selection underway
• 12 full-time members, 2 part-time
• 8 votes required to adopt rules
• 3 industry representatives
• SEC likely to accept IASC with reconciliation to
  GAAP required

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Audit Committee Effectiveness

• 1987 Treadway Commission guidelines still a great
  outline
• Is your audit committee diligent or just going
  through the motions
• Dont let your public accounting firm dominate
  the process
• Got a charter? Updated? Buy in?
• visit www.fei.org/tech/techissues.html

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Final Audit Committee Rules

• Requires NYSE NASDAQ companies to have
  independent committees -- at least 1 finance
  expert, 3 others financially literate
• Must adopt a formal written charter in proxy
  every 3 years
• Outside auditor to delineate all relationships

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Final Audit Committee Rules

• Auditor to discuss accounting quality, not just
  acceptability
• Requires AC report
• Requires SAS 71 interim reviews for all
  registrants, preferably before earnings
  announcement

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Implementing FAS 133

• Deadline
• calendar year-ends by 1/1/01
• All derivatives recorded at fair value
• Special accounting for certain derivatives
• Hedge relationships
• fair value
• cash flow
• foreign currency

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The Future Finance Function
Heidi Kunz, CFO The Gap
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Compensation
Greg Maffei, former CFO Microsoft 1999 Forbes CFO
Forum
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Leading the Future of Corporate Finance
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FEIs Mission

• To be the preeminent association for financial
  executives and to
• Alert members to emerging issues
• Develop the professional and management skills of
  members
• Provide forums for peer networking
• Advocate the views of financial executives
• Promote ethical conduct

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FEIs Vision is to build an organization that is

• Dynamic and CONTEMPORARY
• A stronger network centered on a vibrant Internet
  Community
• A highly effective ADVOCATE on SEC, FASB and
  legislative matters
• Member-service oriented

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FEI Objectives 2001

• Create a Dynamic, Proactive and Contemporary
  Organization by
• Increasing membership by 500 through professional
  sales and marketing campaigns aimed at priority
  growth segments.
• Tripling the traffic on www.fei.org as measured
  by pages viewed
• Continuing to strengthen the ties to Chapters by
  providing tools to support quality chapter
  operations.
• Positioning FEI as an international organization
• Gaining four new national partners of FEI
• Significantly increase the finance and technology
  competencies of the national staff.

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FEI Accomplishments

• Membership is up 2,000 new members
• Women 14 of new applications
• Internet initiatives diving traffic on web site
• AICPA life insurance program
• FASB efforts
• FAS 133
• in-process RD project deferred
• director options treated same as employees
• SEC efforts
• SAB 99 (materiality)
• SAB 101 (revenue recognition)

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FEI Accomplishments

• Popular conference calls have drawn over 6,000
• FMN video training today used by 30,000 finance
  professionals
• 85 chapters hold more than 600 meetings -
  networking, development
• Annual sponsorship program launched (13 partners)
  - SEI Investments, Solomon Software, Arthur
  Andersen, KPMG
• Financial Executive magazine Jeff
  Marshall new editor-in-chief

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FEI Accomplishments

• Career Center with online job bank
• Launched Committee on Private Companies
• Two new e-newsletters - PrivateNet and CareerTrax
• Record financial reporting conference
• Successful technology conference and annual
  conference

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FEI Internet Community

• www.fei.org
• FEI Express now reaches 13,000
• On-line Job Postings
• On-line Membership Application
• Download archive/teleconference playback
• Chapter toolkit
• Webcasts coming in a big way

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FEI Improvement Areas

• Responsiveness to member needs
• Building an Internet community
• Programs services delivered in new ways to
  accommodate busy members
• Program support for chapters
• Provide MORE networking for members
• More accessible professional development
• Grow our membership base

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How YOU can make FEI even stronger ...

• Contemporary chapter operations
• Recruit colleagues
• Local leadership
• National technical committees
• Share your best practices

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Leading the Future of Corporate Finance