U.S. Accounting Board Seeks
New Form of Earnings Report
By LEE BERTON
Staff Reporter of THE WALL STREET JOURNAL
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
manipulation.
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
figure.
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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