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Sarbanes Oxley : Finance : Survey
Important New Research from Financial Executives International
Comprehensive Online Financial Report Database to Supplement Resources
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Michael Cangemi
President and CEO
FEI
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Financial Executives Research Foundation (FERF), the research affiliate of Financial Executives International (FEI), announced recently the release of two important new pieces of research designed to aid public company management and corporate boards in the efficient evaluation of their assessment of reporting issues and internal controls.
A new FERF Study, entitled “What’s New in Financial Reporting: Financial Statement Notes from Annual Reports”, examines disclosures from 2006 annual reports for the 100 largest publicly-traded companies which used particularly innovative techniques to clearly address difficult accounting issues. The study identifies and analyzes recent reporting trends and common practices in financial statements.
The report illustrates how companies addressed specific accounting issues recently promulgated by the Financial Accounting Standards Board (FASB), and by the Securities and Exchange Commission (SEC), and in doing so, uncovered a number of trends, which included:
- Most of the disclosures selected appear to have been developed specifically for a company’s own operations and industry standards, rather than “boilerplate” disclosures.
- Four accounting areas identified with a considerable variation in disclosures. The examples cited in these areas used innovative techniques to clearly address difficult accounting issues.
- Commitments and contingencies
- Derivatives and financial instruments
- Twenty-five out of 100 filers in the 2006 reporting season reported tangible asset impairments as a critical accounting policy.
- Many companies report condensed consolidating cash flows statements as part of their segment disclosures, although not required by SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information.
To further facilitate use of this report as a reference tool, all of the financial statement footnotes gathered for the study are available to members on the Financial Executives International website at www.financialexecutives.org/eweb//dynamicpage.aspx?site=_fei&webcode=EDG_home.
“FERF undertook this study to provide our members with an illustration of how companies have used innovative techniques to clearly address difficult accounting concerns, ” said Cheryl Graziano, Vice President, Research and Operations for FERF. “Recent accounting issues publicized by the FASB and the SEC have had a direct impact on members of the financial community, and the report shows that many companies are taking action. We hope that all financial executives can utilize the report as both a quick update to summarize recent trends in the most annual reporting season, and well as a reference to address common accounting issues. The convenience of the online database will provide executives with a readily handy tool when drafting their own annual reports.”
A second piece of research by FEI, entitled the “FERF Fraud Risk Checklist”, provides boards of directors and management with a series of questions to help in assessing the potential risk factors associated with fraudulent financial reporting and the misappropriation of assets. These questions were developed from a number of key sources on financial fraud and offer executives a single framework in which to evaluate their company’s reporting, while providing a sample structure for management to use in documenting its thought process and conclusions.
“Making improvements to compliance with Sarbanes Oxley is a daily practice for financial executives, and the first step in efficient evaluation of internal controls is the proper assessment of potential exposures or risks associated with fraud,” said Michael Cangemi, President and CEO, Financial Executives International. “Through conversations with members of the financial community, we learned that, while this type of risk assessment is a routine skill for auditors, many members of management are not always familiar with this concept. This checklist combines knowledge from the leading resources on fraud to help financial management take a proactive step in evaluating their company’s practices and identifying areas for improvement.”
The annual report study, including the full report and access to the online database, is available for $129. The fraud checklist is available for $49.95. Financial Executives Research Foundation, Inc. (FERF) is the non-profit 501(c)3 research affiliate of Financial Executives International (FEI). FERF researchers identify key financial issues and develop impartial, timely research reports for FEI members and nonmembers alike, in a variety of publication formats. The Foundation relies primarily on voluntary tax-deductible contributions from corporations and individuals.
Financial Executives International is the leading advocate for the views of corporate financial management. Its 15,000 members hold policy-making positions as chief financial officers, treasurers and controllers at companies from every major industry. FEI enhances member professional development through peer networking, career management services, conferences, teleconferences and publications. Members participate in the activities of 85 chapters, 74 in the U.S. and 11 in Canada. FEI is headquartered in Florham Park, NJ, with additional offices in Washington, DC, and Toronto. Visit www.financialexecutives.org for more information.
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