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By Matthew Quinn
As a gentle reminder that a New Year doesn't necessarily mean a happy one, Financial Executives International's CEO and President Marie N. Hollein put together the association's annual list of the top challenges for finance chiefs heading into 2010. While there are some familiar foes -- taxation, employee benefits, and global convergence of U.S. GAAP and International Financial Reporting Standards -- there are a few newcomers.
Some of the new challenges are derived from old ones. Last year, everyone was worried about the global economic crisis, now they're focusing on the strength of the economic recovery and the U.S. fiscal outlook.
Concerns about fair value measurements have been replaced by worries about financial instruments in general. FEI noted that FASB and IASB will continue to develop a model for accounting for financial instruments in 2010, including hedge accounting. But, presumably in the name of making things more complicated, each board started deliberating separately, planning on a subsequent joint meeting to reconcile differences. Additionally, FASB expects to issue one comprehensive proposed Accounting Standards Update in early 2010 that addresses the measurement, classification and impairment of financial instruments, as well as hedge accounting.
Meanwhile, IASB -- in response to the European Union -- is completing its deliberations on the project in three phases. Phase one was completed with the issuance of IFRS 9 Financial Instruments. As part of phase two on impairment, IASB put out an exposure document on amortized cost with comments due on June 30, 2010. And phase three on hedge accounting is expected to produce an exposure draft in the first quarter of 2010.
IASB and FASB will also be working on a project in 2010 to clarify the principles for recognizing revenue and to create a joint revenue recognition standard for U.S. GAAP and IFRS. The proposed standards focus on an entity assessing whether control has been transferred to the customer. An exposure draft is expected this year.
Of course, reform is a word on everyone's mind heading into the New Year, specifically when it comes to health care and financial regulation. FEI expects health-care reform legislation to pass in 2010, but warns that, "the long-term impacts on companies and their ability to design health coverage tailored to their employees needs and their company's mission will last for years."
The direction of financial regulatory reform is arguably even less clear. FEI says finance execs should keep a close eye on proposals to regulate the over-the-counter derivatives markets, "which could greatly affect companies' working capital." Under the legislation, the majority of derivatives products will be standardized and forced onto exchanges and be centrally cleared, "adding additional margin and capital requirements for each contract." FEI, however, said it expects some exemptions for corporate end-users legitimately managing risk to ultimately be provided.
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