About one-third or fewer companies plan to use the fair value option, FAS 159, in auditing complex financial data, according to a survey of CFOs and controllers by Grant Thornton LLP. That percentage drops to 28% when it comes to reporting the most complex and controversial products: derivatives. A bigger share (35%) of the 688 respondents intends to adopt the standard for evaluating liabilities; other financial instruments (32%); and equity-method investments (31%).
Companies want to avoid the potential for wild earnings swings so it's not surprising that the majority aren't using fair value, says Gary Illiano, partner-in-charge of international and domestic accounting at Grant Thornton. On the hand, says Illiano, "there are narrow circumstances when you get into complex valuations that require massive paperwork where FAS 159 makes sense."
Financial executives were polled during the turbulent period between Sept. 9 and Sept. 19, when Lehman Brothers and Merrill Lynch collapsed and concerns of an impending global meltdown surfaced. Other findings: 64% said they agree with the Financial Accounting Standards Board's (FASB's) definition of "discontinued operations" to include held-for-sale acquisitions and 58% said they support the FAS 5 change for contingent liabilities. Moreover, 85% indicated an interest in supplementing financial statements with nonfinancial measures that could provide relevant intangible values.
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"I take this to mean that people want to tell their stories beyond the numbers, but somehow feel that they are constrained by liability issues," says Illiano. "They want to share value drivers and paint a picture." Providing more thorough explanations of, say, executive compensation or corporate governance measures could show longer-term potential, to perhaps offset a decline in revenues or profit.
CFOs and controllers remain at best lukewarm on acceptance of the International Financial Reporting Standards (IFRS) and eXtensible Business Reporting Language (XBRL), according to the survey. While 55% agree that IFRS should be used instead of the Generally Accepted Accounting Principles (GAAP), 59 percent disagree with the Securities and Exchange Commission's decision last year to allow foreign corporations listed on U.S. exchanges to file statements prepared according to IFRS without reconciliation to GAAP. Only one in five said they have experience preparing financial statements according to IFRS.
While more than half expressed familiarity with the XBRL concept, 92% said they don't plan to use the data tagging language at this time; only 2% are using it now. On Oct. 21, XBRL U.S. introduced draft dictionaries of financial and business terms, or taxonomies, for the risk/return section of mutual fund prospectuses and the investment company portfolio information, inviting comment.
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