Recent Columns By Former FEI CEO Colleen Cunningham

Technology has changed audit and accounting processes in profound ways in the last 30 years, including the way workpapers are prepared and communicated. But as Columnist Colleen Cunningham writes, when you recall the world of financial reporting in the early 1980s, many of the important accounting issues back then still dominate the discussion today. Details inside.

Six years ago the Financial Accounting Standards Board and the International Accounting Standards Board agreed to work on a joint project to develop an improved, common conceptual framework that would provide more consistent accounting rules. In September, the boards completed just the first phase of their collaborative effort. Slow going, indeed.

Earlier this July, the Financial Accounting Standards Board published an exposure draft for comment, Contingencies (Topic 450): Disclosures of Certain Loss Contingencies. (Most of us know this as Financial Accounting Standard No. 5.) This is the board’s second attempt at addressing contingencies; its previous attempt in 2008 received 241 comment letters—mostly unsupportive.

As a result of the persistent poor economy, more companies are filing for reorganization under Chapter 11 of the U.S. Bankruptcy Code. So-called “fresh start” accounting is available for many of them. New accounting pronouncements, however—principally new rules for business combinations and fair-value measurements—have made the application of fresh-start accounting even more complicated than ever.

So much has been written lately about accounting scandals, audit failures, and the financial crisis. Reforms have been passed, yet accounting problems persist. This prompted me to ask: What’s the value of an external audit at all these days?

The digital revolution in financial reporting is underway! Oh, um—you haven’t noticed yet?

Every year I attend Financial Executives International’s annual Current Financial Reporting conference. The 2009 conference, held in November, was its usual excellent event, addressing everything from new accounting rules for mergers to new guidance on fair value to the future of financial statement presentation.

For an economy that isn’t seeing enough revenue these days, the United States certainly does have a lot of ways companies can try to recognize it.

The International Accounting Standards Board finally issued its long-awaited, International Financial Reporting Standard for small and medium-sized entities (SMEs) in July. This is more important than you think.

Despite an apparent drop in momentum recently, the United States and the world are on a clear path to move to one set of global accounting standards. In fact, the only common theme we’ve seen in comments about the Securities and Exchange Commission’s plan to adopt International Financial Reporting Standards is that everyone believes we should have one standard.

As everyone reading these words knows, Congress enacted the Sarbanes-Oxley Act in 2002 to improve transparency and accountability in business processes and financial reporting. The intent was to increase confidence in public markets. Section 404 of SOX outlined the requirements for senior management at publicly traded companies to assess the effectiveness of internal controls, and for an attestation by their external auditors on that assessment.

The International Accounting Standards Board and the U.S. Financial Accounting Standards Board recently published a discussion paper for public comment on financial statement presentation. The paper presents the boards’ initial thinking on a possible future format.

I had planned to write a completely different column for this month—but, much like the Treasury Department, was inspired by recent events regarding the credit crisis to change course.

In case you haven’t heard, International Financial Reporting Standards are coming to the United States—so it’s not IFRS, it’s WHENRS!

My name is Colleen Cunningham, and I weigh 7 pounds, 2 ounces—at least, I do if you go by historical cost accounting.

Once upon a time, I was a young auditor dutifully carrying around my audit bag filled with hand-written green ledger sheets (written with my Pentel, of course). I got on planes to Washington, D.C., to deliver filings to the Securities and Exchange Commission on their due date and walked across New York City to give a client some much-needed document.

Any time now, we are expecting both the Financial Accounting Standards Board and its global counterpart, the International Accounting Standards Board, to issue final standards on accounting for business combinations and non-controlling interests. These standards are the culmination of a joint project between FASB and the IASB, and staffs of both boards have participated on the project team since it was added to their agendas in 2002. In fact, the business combinations project was part of the now-famous Memorandum of Understanding that outlined the “Roadmap of Convergence” between International Financial Reporting Standards and U.S. Generally Accepted Accounting Principles to occur by 2009.

The Bear Stearns hedge fund meltdown put “fair value” on the front pages. Now, Financial Accounting Standard No. 157 is going to put it on your books, and soon.

As has been widely reported in the business media, New York-based Bear Stearns recently announced a $3.2 billion bail out of two of its hedge funds, due to investments in subprime mortgage loans (basically, home loans to borrowers with bad credit). Although the funds had been using fair value accounting to calculate the assets’ worth, the collapse caught many by surprise—largely because it is extremely difficult to value assets that do not have a ready liquid market. The funds ran into trouble when a downturn in parts of the housing market negatively impacted the funds’ investments in complex securities backed by subprime mortgages; since the securities are not frequently traded, the “fair value” is difficult to determine. Borrowed money was used in an attempt to save the funds.

Few concepts involving the preparation of financial statements in conformity with Generally Accepted Accounting Principles are as difficult to address as “materiality.” This is an issue that has been covered by Compliance Week extensively over the last few months; in May, the publication was the first to break the story that the SEC was indeed considering an update to its views on materiality, and former SEC deputy chief accountant and Compliance Week columnist Scott Taub recently penned a column on materiality as it pertains to restatements.

Compliance Week is pleased to introduce Colleen Cunningham as its newest columnist. A former chief accountant of AT&T and former CFO of global advertising giant Havas, Cunningham was most recently CEO of Financial Executives International. Her column will appear in Compliance Week every other mont

The March 16 deadline for public companies to complete an audit of their internal controls over financial reporting under the requirements of Sarbanes-Oxley Section 404 has come and gone. Now that we have gone through the first run of this mammoth compliance effort, it’s time to review what we have learned and identify ways to improve the annual certification process going forward.

Last week, the CEO of Financial Executives International, Colleen Cunningham (formerly Sayther), crafted for members a list of the "top 10 financial reporting challenges for 2005." Though there aren't many surprises in the list, it is a nice compilation of the key issues that should be on companies' radar screens during the new year. We're reprinting the list, below, with permission from FEI, along with links to related rules, coverage, or guidance for each topic.