FEI CEO's 2005 Top 10 Financial Reporting issues.

• Author: Heffes, Ellen M.
• Position: Regulations for financial services - Financial Executives International , chief executive officer Colleen Cunningham

As companies absorb all of the financial reporting changes for 2004 financial reporting--and look ahead--FEI CEO and President Colleen Cunningham has compiled the following list of the Top 10 Financial Reporting Challenges for 2005:

1. Stock Options. Currently, the Financial Accounting Standards Board (FASB) has proposed that all stock compensation be expensed after June 30, 2005.

2. Internal Controls. Sarbanes-Oxley Section 404 reporting on internal controls was effective for fiscal year-ends after Nov. 15, 2004 for accelerated SEC filers. In 2005, it is effective for all other SEC filers, and more and more of its provisions are becoming applicable to private companies as well.

   More and more lenders and states are asking private companies about the status of their internal control environment. Private companies can also expect that the audit procedures used by their external audit firm may become more "integrated" with internal controls as the audit firms change their firm procedures.

3. Revenue recognition. Monitor FASB's project on revenue recognition. The current thinking of FASB has dramatic changes to how we are used to recognizing revenue (asset/liability method vs. earnings process). While this will likely not be effective for several years, it is vital that all stakeholders get involved in the deliberation process so that we can attempt to influence the direction. FASB is currently planning on issuing a Preliminary Views document (these precede Exposure Drafts) in the fourth quarter of 2005.

4. Uncertain tax positions. FASB has a project on its agenda, related to uncertain tax positions, that is intended to clarify that an entity's tax benefits recorded in tax returns must be probable of being sustained prior to recording in the financial statements. An Exposure Draft (ED) was expected in the fourth quarter of 2004, with a final statement expected in the first quarter of 2005.

5. Unremitted foreign earnings. As a result of the American Jobs Creation Act, or the Tax Act, companies are permitted to repatriate earnings from foreign subsidiaries into the U.S. at an 85 percent deduction through the end of 2005. Companies will need to record the taxes on any earnings that they intend to repatriate.

6. Business Combinations. The International Accounting Standards Board (IASB)/FASB are jointly working on a project regarding major changes to Business Combination-accounting. Once again, FASB is moving more and more towards a...