FEI.

• Position: Financial Executives International

CONFERENCES

FEI/AICPA -- Quality of Earnings Program

FEI joined with the American Institute of Certified Public Accountants to host an information-packed one-day conference in New York on April 26. The focus: benchmarking the quality of earnings statements, a major topic at a time when analysts and investors have taken issue with many earnings announcements.

The conference kicked off with an address by Lynn Turner, chief accountant for the Securities and Exchange Commission, who argued that a rising number of earnings warnings in recent quarters actually argue that investors are gaining increased transparency. Turner also said he thinks corporate controllers are experiencing fewer pressures to "make the numbers" as audit committees become more knowledge able and aggressive. Still, CFOs need "spine" to stand up to CEOs when they sense there is an attempt to manage earnings, he said.

Turner maintained that many earnings statements need to be cleaned up and reconciled to GAAP, and that too many corporate releases highlight "earnings before the bad stuff."

He also argued that standard-set ting processes need to be made simpler and directed more at "economic reality," which might lower the cost of tracking systems. The SEC, he added, would like to see the analyst community set up guidelines for stock recommendations, which he suggested are consistently higher than company results would suggest.

A panel discussion then followed on evaluating earnings quality, featuring three Wall Street analysts and a research consultant. Jane Adams, a former SEC accountant who now works for Credit Suisse First Boston, reviewed her perceptions of the real and hypothetical impact of complying with FAS 133, the controversial standard on valuing derivatives. Adams complained that there is no consistency of treatment, with companies sometimes scattering derivative accounting in four or five places on their balance sheets.

Patricia McConnell of Bear, Stearns & Co. largely defended the practices of analysts, whom she said are smarter and better-trained than ever before. "I think we're closer to representational faithfulness," she said, noting tremendous advances in modeling financial performance as analysts work to disaggregate information and determine future cash flows more precisely.

Gabrielle Napolitano, a managing director with Goldman, Sachs & Co., praised the FASB decision to put a business model project on its agenda, saying the board "is attempting to identify...