The eurozone crisis and U.S. financial reporting.

• Author: Cheney, Glenn Alan
• Position: FINANCIAL REPORTING

Whether the eurozone's finances are falling apart or getting patched back together, the shakiness of the situation is sending ripples of contagion to American shores. Risks are rising, assets are impaired, currencies are insecure, measurements are getting tricky, disclosures are getting complicated and capital is shifting. Around the world, financial reporting is facing unprecedented challenges.

Never has it been more important for companies to accurately, honestly and consistently disclose the details of their financial condition and, in so doing, their exposure. In times of uncertainty, nothing nurtures tranquility more than transparency. Solid information is a pillar in shifting financial sands.

James Nayler, a senior manager with BDO International Ltd., warns that Europe's problem is America's problem.

"The economic problem in parts of Europe is potentially a highly contagious disease, with the ability to cross national borders and spread globally," Nayler says. "Therefore U.S. organizations could be just as exposed as their European counterparts with the extent of exposure (direct or indirect) determining just how sick an organization could become. As no one has yet come up with a cure, the consequences could be fatal unless the exposure is appropriately managed."

Every American company with connections to Europe--subsidiaries, operations, trading partners, markets, suppliers, investments or currencies--needs to report on the impact of events, even possible events, in the European Union.

Steven Brice, a partner with United Kingdom audit firm Mazars LLP, says that European instability is global.

"Europe currently has significant uncertainty in capital markets linked to the sovereign debt crisis along with many banks still needing to be bailed out or balance sheets recapitalized," Brice says.

"This economic backdrop is not helping business. In a global economy U.S. financial executives still need to be concerned about the financial instability in Europe. Europe is a major trading partner of the U.S., accounting for about 20 percent of U.S. exports." Furthermore, Brice says, "U.S. banks have significant credit risk with Europe. Confidence needs to return to benefit all businesses and a stronger Europe will aid growth in the U.S."

Nothing bolsters confidence like good information. Even when it's bad, it's good--that is, even if the information is troublesome, it's better than no information. But rapidly changing situations can render good...