6. Adding Up Their Own Beans
Accountants have more beans to count -- on the job and in their wallets.
Pay increases are occurring at both public accounting firms and corporate internal-audit departments. According to Robert Half International Inc., a financial recruiting service based in Menlo Park, Calif., average starting salaries for managers at large accounting firms are expected to rise 10% this year to between $68,000 and $92,000. Average starting salaries for internal audit managers at companies with more than $250 million in annual revenue are expected to rise 12.5% to between $69,500 and $90,000.
With bigger bucks dangling, many schools of accountancy are reporting increases in student enrollment, and the New York-based American Institute of Certified Public Accountants says more people are sitting for its CPA exams. The number of accounting degrees awarded nationwide in 2003 jumped 11% from the year before, according to the institute.
7. Stock-option Showdown
Barring intervention by Congress, most companies will begin expensing employee stock options in the third quarter of this year under the terms of a long-debated new rule of the Financial Accounting Standards Board, the Norwalk, Conn., accounting-standards setter. The House has passed a bill to block the proposal, but the rule's main opponents -- mainly big tech companies from Silicon Valley -- haven't yet been able to win over the Senate.
Requiring companies to declare options as an expense, like salaries and other compensation costs, will reduce profits. Bear Stearns Cos. says that if options had been expensed in 2003, the aggregate earnings of companies in the S&P 500 index would have been 8% lower. The impact is expected to be greatest at software and tech firms, where options -- the right to buy a specific number of shares at a fixed price sometime in the future -- tend to be a big part of compensation.
Not all companies have waited to be told to expense their options. Coca Cola Co. and Washington Post Co. started booking them several years ago when the debate began. Today, about 850 companies expense their options, including Microsoft Corp., Exxon Mobil Corp. and Wal-Mart Stores Inc.
8. A Fairer Fair Value
For the past decade, companies and auditors increasingly have sung the praises of "fair value" accounting for various assets and liabilities. Under the concept, assets are booked at their current worth in the marketplace, not the cost at which they were acquired.
The only problem is: What is "fair" fair value? When pinning fair value for complex balance-sheet items such as private-equity portfolios, mortgage-servicing rights and insurance loss reserves, a lot of estimates come into play.
Until recently, guidance has been all over the map. Last June, the FASB proposed a statement on fair value measurement and in September discussed it with some constituents at an open meeting. The FASB now is discussing issues raised by constituents and plans to finalize its proposal as early as this year.
"The rules are not trying to reduce estimates but make them more accurate," says Tim Ryan, an audit partner at PricewaterhouseCoopers, New York.
9. One World, One Set of Rules
It's been a long and winding road for the International Accounting Standards Board, the London-based panel that in 2001 began creating one set of accounting standards for European and other countries. As of Jan. 1, public companies in more than 90 countries now have the option or are required to use the new rules. In the European Union, more than 7,000 public companies will begin using the standards this year.
The rationale is to develop consistent financial reporting across countries, especially as companies register their stocks to trade in each other's markets. The U.S. will retain its own accounting standards, but the FASB and IASB are seeking common ground. "There's still a lot left to do," says IASB board member Mary Barth. "But I never would have dreamed we would have been working as closely with the FASB as we do today."
10. Hedging Bets
After much debate, the European Commission in November adopted what many have declared a watered-down accounting standard on the financial contracts known as derivatives. International Accounting Standard 39 concerns the reporting of derivatives such as foreign-currency risk hedges and risk associated with variable-rate debt. It is seen as a major victory for the banks that often employ the instruments, because it leaves them much discretion when reporting losses.
The issue is no less contentious in the U.S. The FASB's derivatives standard and related guidance fill more than 800 pages. Amid the complexity, the mortgage-finance giant Fannie Mae recently announced that it will restate billions of dollars in past earnings to recognize an estimated $9 billion of losses on derivatives used to hedge interest-rate risks.
Fellow mortgage-purchaser Freddie Mac is one of many companies with a big restatement already behind it, due in part to misapplication of the rules.
The FASB is trying to clarify the rules. "There's a frustration level among everybody," says Marc Lackritz, a member of the FASB's advisory council and president of the New York- and Washington, D.C.-based Securities Industry Association. "We all yearn for simplicity but it's a very complicated issue."
