FEI Identifies 10 Largest Financial Reporting Challenges for 2005

December 28, 2004 (PLANSPONSOR.com) - Financial Executives International (FEI) has named the top 10 financial reporting challenges for the upcoming year.

According to AccountingWeb.com, the group believes that these challenges will have major impacts on the way companies manage, report financial results, and compensate employees.

The top 10 challenges identified by  FEI  are:

  • Stock option expensing, which has come to the forefront of finance with The Financial Accounting Standards Board’s (FASB) mandatory stock option expensing starting in mid-2005 (See   FASB Releases Stock Option Expensing Rule  ).
  • Complying with Sarbanes Oxley Section 404, which requires reporting on internal controls already in place for accelerated SEC filers with years ending after November 15, 2004. During 2005 all companies have to comply.
  • Revenue recognition, which could be affected as FASB is deliberating over a new approach that would recognize revenue in terms of changes in assets and liabilities, rather than an earnings process.
  • Assessing sustainability of tax benefits as FASB seeks to clarify that the tax benefits recorded in an entity’s tax returns must be “probable of being sustained” before they get recorded in the financial statements.
  • Recording taxes on repatriated earnings as per the American Jobs Creation Act, which allows companies to repatriate earnings from foreign subsidiaries into the United States at an 85% deduction through the end of 2005.
  • Accounting for Business Combinations, as FASB and the International Accounting Standards Board (IASB) are expected to require major changes to Business Combination accounting. They are expected to move towards a “fair value” model, which would alter contingent assets and liabilities associated with an acquisition. An Exposure Draft is expected in the first half of 2005, with a final statement scheduled for the fourth quarter.
  • Expensing Inventory Costs, as the FASB Statement 151 was issued in November 2004 and is effective for fiscal year-ends after June 15, 2005. The clarification makes FASB’s language more consistent with the IASB’s inventory standards on idle freight, handling costs and spoilage required to be expensed.
  • Disclosing off-balance sheet items, as CFOs will need to comply with the SEC’s suggestions in its report due out in early 2005. Expected to be addressed are items such as pensions and leases among others.
  • Translating reports to XBRL, as the SEC has asked companies to voluntarily use Extensible Business Reporting Language (XBRL), a new software code designed to increase efficiency and reduce error in the electronic communication of business and financial data, for their 2004 reporting.
  • MD&A Guidance, as the SEC looks to clarify the Critical Accounting Policy. In 2005, companies will have to ensure that their disclosures of Critical Accounting Policies adequately and clearly explain the business model.