FEI CEO's 2007 Top 10 Financial Reporting Challenges.

• Author: Heffes, Ellen M.
• Position: FinancialREPORTING

As companies absorb all of the financial reporting changes for 2006 financial reporting--and look ahead--FEI CEO and President Colleen Cunningham has compiled the following list of the Top 10 Financial Reporting Challenges for 2007:

1. Internal Controls. The U.S. Securities and Exchange Commission (SEC) and Public Company Accounting Oversight Board (PCAOB) are working on revised guidance for implementing Section 404 of the Sarbanes-Oxley Act. It is expected that this new guidance will more clearly articulate how companies and auditors might take a more risk-based approach to its implementation.

2. Uncertain Tax Positions. FIN 48 "Accounting for Uncertainty in Income Taxes--an Interpretation of FASB Statement No. 109," will be effective for 2007 reporting. Many companies have experienced implementation issues associated with this Interpretation, so be sure to adopt its provisions carefully.

3. XBRL. The SEC has made extensible Business Reporting Language (XBRL) a priority. Expect more momentum in 2007 as more companies voluntarily adopt and the SEC continues to prioritize XBRL.

4. Fair Value. FAS 157, "Fair Value Measurement," will be required to be adopted for financial statements for fiscal years beginning after Nov. 15, 2007 and interim periods within those fiscal years. This standard establishes a framework for measuring fair value and expands disclosures.

   Fair value is determined to be a market-based measurement, and the standard sets up the hierarchy for determining the fair value based on "observable" inputs (ready markets, etc.) and "unobservable" inputs. The devil is in the details in determining "unobservable" inputs. The standard requires the use of a "market participants" approach rather than an "entity specific" approach. This will need to be carefully implemented.

5. Servicing Assets and Liabilities. FAS 156, "Accounting for Servicing of Financial Assets--an Amendment of FAS 140," is effective at the beginning of the first fiscal year that begins after Sept. 15, 2006. This standard requires an entity to recognize a servicing asset or a servicing liability each time it undertakes an obligation to service by entering into a servicing contract in certain situations.

6. Complexity in Financial Reporting. The level of restatements (over 10 percent of registrants) implies a level of complexity in the existing reporting model that requires subject matter experts on staff for every accounting area. This is not always practical--particularly...