As we wrap-up 2010, and look forward into next year, I think 2011 is shaping up to be a very important year for accounting standards world wide. First, the initial wave of FASB / IASB convergence projects should be completed and compliance timelines announced. The expectation is for the new rules to become effective no earlier than 2013. These changes will impact customers reporting under both US GAAP and IFRS. Second, the SEC in the US is expected to provide an update on the IFRS Roadmap and adoption timeline. Many US customers are waiting for the SEC’s announcement before making final preparations for IFRS. On November 29, the US Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB), published their 3rd progress report on converging US GAAP and IFRS. Both FASB and IASB reaffirmed that the target completion date for the priority projects remains June 2011 or earlier.
In general, the key discrepancies or gaps are being closed. However, companies should realize that small differences will still exist. So, a successful convergence will not mean that the FASB and IASB standards become identical, but that they are closer than before with major differences resolved. Furthermore, this implies that a second transition step to IFRS may still be required for US GAAP filers if the SEC mandates IFRS adoption for public companies, though this transition is expected to be easier than if the FASB / IASB convergence projects had not been successfully completed. For a summary of the FASB/IASB’s update, please see the Journal Of Accountancy. On October 29, the SEC provided an update on their IFRS work plan. Though there were no major conclusions or announcements, it is clear that the SEC is diligently working on IFRS and is currently focusing on six major areas. In their update, they also raised logical concerns about the processes and organizations involved in setting IFRS standards. Though no exact dates are given, the SEC IFRS work plan updates will be made periodically, so expect another next Spring or Summer. For a summary of the SEC’s update please see the Journal Of Accountancy.
With so many important accounting updates expected in 2011, I think history will show that it was an important tipping point for accounting standards world wide. As you consider your New Year’s resolutions at your workplace, don’t forget to add one for accounting changes. Knowledge and advanced planning will be the best way to ensure success in 2011 as the accounting changes unfold. If you want some ideas for specific recommendations or action plans, please view the Fall Webinar Series and the IFRS Webinars and Recordings, both contain lots of excellent content from SAP and our partners.
Thirty years ago when I did my MBA, my professor and lunchtime running mate was the late Peter Doyle, who wrote the seminal book on what marketing was really all about called Value Based Marketing. He borrowed all the measures about value was from financial theory and then fleshed out what this meant for marketing folk in terms of strategy, tactics and metrics. In the commercial world, value equates to total stakeholder return either in terms of annual dividends and the capital gain on their stockholding and Peter argued that everything marketing folk do should be focused on driving these. So he argued that tactics that drive customer loyalty ultimately help to drive the stability of earnings that should help strengthen the stock price. Although marketing folk tend to be fickle and change tack at the drop of a hat, successful marketing programs take months if not years to execute successfully and hanging in for the long haul generally pays off. All good common sense.
So how did we get to a situation where the average length of stock holding has shrunk from 5-6 years in the 1970’s down to 5-6 months today with the result that companies consistently compromise the ability of marketing folk to execute on well thought out strategies by constantly cutting budgets to ensure short-term quarterly earnings figures are hit? Surely we’re selling ourselves short and ultimately exposing ourselves to competitors that are not so focussed on short terms gains such as privately owned companies or competitors from Asia Pacific that typically take a longer term view.
The UK’s new coalition government is making noises about introducing some form of legislation to curtail the short termism of modern capitalism. However it’s a long journey between the sound bite and legislation and I for one would encourage them to be radical with their thinking. How about throwing out the one share: one vote principal and rewarding people and institutions with proportionally more voting power the longer they hold on to their stock? Or how about giving stockholders ultimate veto over CEO remuneration so that they too focus on long term value creation rather than cashing in their stock options at the earliest opportunity and hightailing into the blue yonder, leaving stockholders little or no better off.
We’ve talked about the theory of delivering shareholder value for too long. It’s high time we put in place a governance mechanism to focus business leaders on actually delivering it.
PS. Fifteen or so years later I was running the sales and marketing for a privately owned company that really didn’t give a damn about making profits as long as we generated enough cash to invest in marketing that would drive long term value and allow the owners to sell it for what was a wonderful price earnings ratio. I met up with Peter at a masterclass he was running at Cranfield Business School and asked him to run a couple of sessions on marketing for our key account customers at some expensive spa hotel over in the Cotswolds. I thought he’d enjoy it, but he waved me away with some half-hearted excuse. It wasn’t till his death was announced a few months later that I understood the brush off.