FEI CEO's 2006 Top 10 Financial Reporting Challenges.

• Author: Heffes, Ellen M.
• Position: Financial executives international

As has become an annual publication "event," again this year we asked Financial Executives International President and CEO Colleen Cunningham to prepare a list of financial reporting issues she believes will be of vital interest for preparers and that will require attention during the coming year. What follows is her list for 2006.

While the regulators gave preparers a little break in standard-setting last year--as public companies complied with Section 404 of the Sarbanes-Oxley Act--the regulators have made up for it during 2005, with a plethora of new reporting requirements. Although, it was very difficult to narrow the field to 10 this year, once again, we have compiled a Top 10 Financial Reporting Challenges for next year (2006), based on our current understanding of applicable implementation dates.

1. Stock Options

   During 2005, the Securities and Exchange Commission (SEC) postponed application of SFAS No. 123(R), Share-Based Payment. We don't expect any more delays--so many calendar year-end companies will have to begin expensing stock compensation in 2006.

   There have been several Financial Accounting Standards Board (FASB) Staff Positions (FSPs) issued to provide additional guidance in implementing SFAS 123(R). These include guidance on determining the grant date (an understanding by employees of the terms and conditions of an award is presumed to exist at the date the award is formally approved by the company, provided certain conditions are met) and a transition election related to accounting for the tax effects of share-based payment awards (which allows a company to take a short-cut method in calculating the beginning paid-in capital pool).

2. Uncertain Tax Positions

   A proposed interpretation was issued in July 2005. The interpretation was developed to address diversity in practice with respect to the accounting for tax positions taken where the ultimate outcome is uncertain. Basically, the proposal requires that a tax position recognized on the tax return be probable of being sustained under audit prior to recognition in the financial statements, and the company must assume that it will be reviewed by the taxing authorities. In order to derecognize, it must be more likely than not.

   Many commenters disagreed with this proposal's "dual threshold" regarding recognition and derecognition. The FASB is currently redeliberating the proposal, but we expect to have a final statement early in 2006, with a likely implementation date later in...