The Wall Street Journal Interactive Edition -- June 27, 1996

U.S. Accounting Board Seeks

New Form of Earnings Report



NEW YORK -- The Financial Accounting Standards Board

proposed another earnings report for companies. Some

analysts said it would provide useful new information, but

others feared it would confuse investors and lead to


The FASB, the chief rule-making body for U.S. accountants,

called a proposed new earnings figure "comprehensive

income." The FASB said it would include current net income

plus other items such as foreign-currency translation

adjustments, certain pension-liability adjustments and

unrealized gains and losses on securities that are available

for sale. Most of these items are currently displayed in the

equity statement on the balance sheet, the FASB added.

According to the FASB, some stock-market analysts had

complained that too many adjustments had been made to equity

and that investors who focus on earnings may overlook them.

Some analysts feared that the new earnings figure would add

to an already crowded field of profit-and-loss figures.

Companies now report earnings before taxes, earnings from

continuing operations, fully diluted earnings a share (which

assume the exercise or conversion of all convertible

securities, options and the like) and earnings before

restructuring -- and sometimes other earnings measures as

well. But the new comprehensive income statement would be

displayed as prominently as the traditional net-income


A number of analysts and accountants said the new bottom

line created by the proposal would be misconstrued by Wall

Street and manipulated by companies to hide big charges

against income.

Robert Willens, an accounting specialist with Lehman

Brothers, said that the new earnings figure may boost the

price-earnings ratio of key stock-market indexes during

periods when the dollar is appreciating and interest rates

are rising. A rising dollar reduces the dollar value of

repatriated foreign earnings, Mr. Willens explained. Rising

interest rates require companies holding debt securities for

sale to reduce their reported profits by the unrealized loss

in the securities, Mr. Willens added.

Robert Herz, a partner with accountants Coopers & Lybrand,

said that some accountants are concerned that the

comprehensive-income statement may just become "another

dumping ground" for certain charges like losses from

hedging. These charges wouldn't reduce the current

net-income figures, pleasing most companies. The traditional

net-income figures would continue to be issued under the

FASB proposal, Mr. Herz noted.

Many big companies also oppose the proposal. "It would

create a confusion for the general public over what are the

real earnings and how many measures should be appropriate,"

asserts P. Norman Roy, president of the 14,000-member

Financial Executives Institute, which includes the top

financial executives of the biggest U.S. companies.

But the Association for Investment Management and Research,

whose membership includes the majority of financial

analysts, supports the proposal. It contends the change

would improve disclosure of certain items on the balance

sheet that may remain hidden from unsophisticated investors.

The FASB requested comments on the proposal by Oct. 11 and

slated public hearings for Nov. 15-19.


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