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To: Frank_Ching who wrote (6857)	2/19/2000 1:35:00 PM
From: Sir Auric Goldfinger	Respond to of 10354

Details, Details, Details The SEC wants more of them in annual reports. As the season for annual reports approaches, some companies are scrambling to amend their preliminary earnings announcements to satisfy concerns voiced recently by the Securities and Exchange Commission. In particular, expenses early in this new year caused by unforeseen Y2K problems are requiring corporate accountants to modify yearend data. They also must roll back certain other costs as adjustments to 1999 results, including added inventory writeoffs, uncollectible accounts receivable, warranty expenses and similar outlays related to information technology that have come to light this year. As these examples indicate, corporate financial reports are more than ever under close scrutiny by the SEC. Chairman Arthur Levitt complains that accounting rules aren't always being applied with enough rigor to give investors the quality of financial information they deserve. A late December letter from the SEC's chief accountant to the American Institute of CPAs stressed that the commission expects well-documented and disciplined application of accounting rules, including complete, explicit disclosures in footnotes to financial statements and compliance with requirements for management's analysis of the financial information. The SEC has taken a number of recent actions to bring corporate reporting up to snuff. One is a much more restrictive view of what is important to investors -- so-called materiality. No longer can companies ignore possible adjustments to reported results simply because the change would have a small numerical effect -- say, 5% of net income. The SEC says that the qualitative aspect of materiality also must be considered. So companies must now judge whether a reasonable investor would consider an item to be important. That, of course, is a subjective notion and it will no doubt cause many companies to err on the side of considering almost anything as material. What else will be in store for investors when annual reports start arriving in coming weeks? While the overall list of topics targeted for special attention by the SEC is long, the following are some of the more important items. Revenue Recognition. Most companies record revenues in their income statements when goods or services are delivered to customers. But the SEC is concerned that some companies record revenues when all of the terms are not set, when the goods are set aside for the customer but not yet delivered, and when other actions are taken to prematurely recognize revenues. The SEC reminds companies that they must meet all necessary conditions before recognizing revenues, and they highlight certain practices they find objectionable. Internet companies are given special attention in the SEC guidelines. While most companies won't have to change their accounting practices, all of them will be required to be specific in their footnotes as to how revenues are recognized. This may provide useful new information to investors. Restructuring Charges. The question here is to what extent a company may record a present liability and expense for actions that it plans to take in the near future to improve the business. The SEC has required several companies to modify their accounting when their plans were too iffy and presented an opportunity to take a big bath in the current year rather than record expenses in the proper future year. Investors stand to benefit from improved footnote information about what happens in subsequent years. Companies will have to lay out details about actual amounts spent and what was or is done with any excessive accruals. Changes in Pension Plans. Companies that have made substantial changes in their pension plans will be required to be clear about how that has affected the amount of pension costs they recorded. Also, the rising stock market has resulted in many companies earning more on their pension-plan assets than the cost they are incurring for present employees. The impact on net income of pension-plan changes must be spelled out in greater detail for investors. Segment Information. New accounting rules to improve the information on segments of a company's business took effect at yearend 1998. However, the SEC feels that some companies have been less than diligent in complying. Expect to see a number of companies provide more details on their segments in 1999 reports. Useful Lives of Assets. Depreciation of property and equipment is still an important component of many companies' income statements. The SEC observes that earlier years' estimates of useful lives might no longer be valid in the fast-changing current economy. Look for some companies to shorten depreciation lives and, accordingly, reduce net income. More rigorous enforcement of laws in larger U.S. cities is said to have improved the general quality of life for citizens. The SEC's representatives don't wear badges or guns. But in a similar way they are improving the quality of life for U.S. investors.