2(c). Comparability, excluding Alternative Accounting Procedures

As part of its oversight activities, the Oversight Committee of the Financial Accounting Foundation interviewed and requested written comments (collectively, "the interviews") from thought leaders among the FASB's constituencies. There were 107 interviews in total, including 12 with representatives of financial statement users and 17 with regulators (a special class of financial statement users). [FASOversight, p. 1]

While the interviews were not designed to elicit criticisms of financial reporting, in general, or to identify the needs of users of financial information, interviewees did comment on those matters. [FASOversight, p. 1]

Following is a summary of the principal comments received [on the subject] from users and regulators relating to criticisms of financial reporting. . . . [FASOversight, p. 1]

The increase in "Other Comprehensive Basis of Accounting" financial statements increases the lack of comparability of financial information. [Also included in 14] [FASOversight, p. 1]

Comparability and consistency in financial reporting practices over a long period of time, generally 5 to 10 years, is very important in comparing an enterprise's performance and financial position within its industry and across industry lines. [Also included in 1(b)] [FASOversight, p. 2]

__________

[F]inancial analysis in general and credit analysis in particular relies on comparisons. Interperiod consistency in reporting allows, for a single firm, comparison of data from one reporting period to the next (time series analysis). Interfirm comparability in reporting allows comparison between and among different firms (cross-sectional analysis). Internal consistency allows comparison of one financial statement datum to another (financial ratio analysis).[RMA90, p. 1]

The standards-setting group should provide leadership in controversial areas. The results of its deliberations should be standards that satisfy the practical needs of users in addition to being conceptually sound and technically feasible. [RMA90, p. 2]

There should be only one set of generally accepted accounting principles applicable to general purpose financial statements for all business and non-business enterprises, regardless of whether the entity is public or private, regulated or non-regulated, large or small. A major objective of financial accounting standards should be to eliminate (or, at least, reduce) the use of alternative accounting methods under similar circumstances. Such alternative practices contribute to a loss of comparability and thus reduce a financial statement user's ability to judge relative risks. Standards should reflect an optimum combination of reliability and relevance, and should apply only to items that are material in size. [Also included in 14] [RMA90, p. 2-3]

The first objective of financial statements is to provide information that is useful and informative to several classes of financial statement users. Accounting data are the primary means by which readers assess the financial position, results of operations, and cash flows of economic entities. Individual classes of users may require additional data to serve their specialized need, but such data should be furnished by means that are supplementary to the primary general purpose financial statements. [Also included in 1(b)] [RMA90, p. 3]

Understandability is an important characteristic of accounting data. The [two] items listed below are vital to understandability. [RMA90, p. 3]

Conceptual support: Financial accounting standards should emanate from a sound conceptual framework that ensures consistency, comparability and neutrality. [Also included in 2(b)] [RMA90, p. 3]

Limits on accounting changes: Changes in financial accounting standards are welcome only when existing standards are deemed inadequate. The APC [Accounting Policy Committee] points out that significant costs to users attach to new standards that do not preserve the consistency and comparability of financial reports. [RMA90, p. 3]

The APC [Accounting Policy Committee] believes that it is better not to apply new standards to transactions of the past. But, when a cumulative retroactive effect of a change in standards must be computed, its effect on the earnings of each prior year must be disclosed so that the income of those years can be adjusted to be made comparable to income that will be reported in the future under the new standard. [RMA90, p. 3]

__________

To the extent that earnings, earnings momentum and earnings potential drive the equity analytics of sell-side reports, the need for more frequent than annual information on performance is clear, as is the need for more finely disaggregated performance information, in common sized formats to enhance intercompany comparisons. [Also included in 1(a), 3(c), 3(d), and 11(a)] [PREVITS, p. 21]

__________

The implications [of increased availability and use of databases] for both financial analysis and financial reporting are profound. A common computer expression is GIGO (garbage in, garbage out). Much of the analysis work performed by computers involves comparisons of company-specific data or of ratios constructed from those data. One needs to read but a few annual reports to realize that such comparisons are fraught with danger if made on the basis of unadjusted data. There are too many dissimilarities in how different companies record similar transactions, events and happenings to draw any but rough comparisons from unadjusted data. Some services, such as COMPUSTAT, attempt to adjust the data themselves; others do not. The need to adjust will be diminished and the quality of comparisons elevated to the extent that financial accounting standards produce financial statements that are consistent from period to period and comparable from company to company. That is a goal to be coveted, but analysts themselves should realize it will never be totally attained. [Also included in 16(a)] [AIMR/FAPC92, p. 15]

In the real world, obviously not all of these objectives can be achieved. They require trade-offs and choices. From the standpoint of financial analysis, we believe priority should be given to the production and dissemination of financial data that reflects and reports sensibly the operations of specific enterprises. If we could obtain reports showing the details of how an individual business firm is organized and managed, we would take more responsibility on ourselves to make meaningful comparisons of those data to the unlike data of other firms who conduct their business differently. We realize the extraordinary difficulty of mandating a disclosure standard while maintaining the flexibility of each enterprise to present its own circumstances and organization, but we believe it to be a commendable undertaking. [Also included in 3(b) and 3(c)] [AIMR/FAPC92, p. 40]

[Context] The following brief summary of the topic "Transition to New Standards," is from the "Executive Summary" of the report the AIMR's Financial Accounting Policy Committee (FAPC):

Financial analysts support the issuance of accounting standards that improve the quality and quantity of financial information. The antithesis is that any new standard disrupts or destroys time-series analysis by making future periods' financial reports not comparable to those of the past. We have observed a trend towards exacerbation of that situation in the transition methods permitted by the FASB in several recent standards. first, there are delayed final adoption dates, thus permitting extended periods of noncomparability between the financial statements of early adopters and those of companies that wait until the final date to adopt. Second, there are choices of method -- restatement, cumulative effect, or (worst of all) delayed effect. In the case of FAS 106, it will be twenty years after the final adoption date before we begin to have total comparability among enterprises. In the meantime, it takes an astute and fortuitous reading of complex footnotes to ferret out the truth. In this section we recommend single transition methods and short transition periods. [AIMR/FAPC92, p. ix]

[Context] It indicates the scope of the discussion of the topic and lists the report's major recommendations, providing an introduction to the following excerpts from the report.

All fundamental analysts use databases of one sort or another. They may be commercial in origin or they may be assembled by the analyst himself or herself. They may be accessed electronically or they may be in hard copy form. They may be extensive or limited in scope. The point is that they are used to make comparisons between and among firms, and over periods of time several years in length. The validity of those databases may be enhanced in one sense, but certainly will be impaired in another every time a new accounting standard is issued. As some or all enterprises adopt the new standard, it ought to have the effect of improving interfirm comparisons by eliminating differences attributable only to accounting. But it is certain to destroy the continuity of previous periods' accounting numbers with those of the present and future. [Also included in 16(a)] [AIMR/FAPC92, p. 48]

It should be apparent that AIMR does not oppose the issuance of new accounting standards. Indeed, much of this report is devoted to suggesting changes that we feel would improve the usefulness of financial reports. Our objective in this section is to advocate methods of transition to new standards that would precipitate minimum disruption to the continuity of data analysts use. [AIMR/FAPC92, p. 48]

We have sincere reservations about the transition methods and procedures specified by FASB pronouncements issued in recent years. Perhaps the epitome of our concern came with the issuance of FAS 96 in 1987, followed by FAS 100 in 1988, FAS 103 in 1989, FAS 108 in 1991 and FAS 109 in 1992. FAS 96, which set new standards for reporting income taxes in financial statements, permitted two transition methods and a three-year transition period. An enterprise could choose to adopt FAS 96 in 1987, 1988 or 1989. The adopting enterprise could choose to restate as many of its prior years as it wished, or it could choose to place the entire cumulative retroactive effect of the change on the income statement of the year it adopted FAS 96. FAS 100 extended the effective date of FAS 96 from 1989 to 1990; FAS 103 extended it further through 1992; and FAS 108 extended it through 1993. Finally, FAS 96 was superseded by FAS 109, which also has a 1993 effective date and continues the choice of transition methods allowed by FAS 96. [AIMR/FAPC92, p. 48]

We realize that there were special circumstances attaching to the replacement of FAS 96 by FAS 109, but the impact on analysis was devastating. Starting in 1987 and continuing through 1993, seven full years, we have had to compare companies using up to three different paradigms of accounting for income taxes. Many firms continue to follow the provisions of Accounting Principles Board Opinion No. 11 and will persist in doing so until forced to switch in fiscal year 1993. Others have adopted FAS 96 but have not yet made the transformation to FAS 109. Still others are early adopters of FAS 109. Furthermore, at the time that firms adopt FAS 109, there still are differences in the disposition of the cumulative effect of the change on prior years' income. It will not be until 1994, when analysts begin receiving 1993 annual reports, that we will have comparable data on income taxes among all firms. And it will sometime into the twenty-first century before analysts will have a sufficient number of comparable years of data to do sensible time-series analysis on reported income tax numbers. [AIMR/FAPC92, p. 48-49]

If FAS 96 and its successors were an isolated instance, our cause for complaint would be modest. But it is not. FAS 106, "Employers Accounting for Postretirement Benefits Other Than Pensions," has resulted in perhaps the most sizable cumulative adjustments in the history of standards setting. Companies adopting that standard also have been given considerable time (1990-1993 for domestic plans: 1990-1995 for foreign plans) and a choice of methods (immediate or delayed recognition of the transition amounts). In one way, FAS 106 is much more destructive of database construction than FAS 96 and its successors. Delayed recognition of the transition amount will extend over twenty years subsequent to adoption of the statement. For enterprises adopting it for domestic plans in 1993, their financial statements may include this vestige of the past until the beginning of fiscal year 2013. It will take an astute and perspicacious financial statement reader to abstract from footnote data required by FAS 106 the facts necessary to adjust financial statements to be comparable. Those who rely on commercial databases do not even have the opportunity to make such adjustments. [Also included in 16(a)] [AIMR/FAPC92, p. 49]

It seems as if the FASB has tended in recent years towards longer transition periods and more choice on the part of business firms on how to account for mandated changes in accounting principles. We understand that motivation for such flexibility derives from the complexity of certain recent standards as well as the magnitude of their effect of financial statements. From the standpoint of financial analysts, recent relaxation by the FASB of quick and strict transition procedures are untimely. Increased availability and use of electronically-accessed financial databases, with the promise of the SEC's EDGAR scheme to be available soon, reduces substantially opportunities for analysts to fashion the tedious adjustments necessary to make financial statements comparable. Furthermore, analysts should not need to make such adjustments. Long transition periods and multiple methods may be politically prudent, but they dramatically reduce the usefulness of financial statements. [Also included in 16(a)] [AIMR/FAPC92, p. 49]

We would be better served if those who set standards and disclosure rules would designate a common date for adoption of a new accounting standard and a final date for complying with a new disclosure requirement. We also urge those dates to be as soon as feasible after the new rules are promulgated and published. Standard setters and capital market regulators need to gather evidence on feasibility as part of their normal processes. The collection of evidence needs to go beyond merely hearing the assertions of business enterprises about their anticipated difficulties in applying the prospective rule(s). As we note below, field testing often can be a vital ingredient in making transition more rapid and productive for all. [Also included in 16(a)] [AIMR/FAPC92, p. 49]

Most important of all to financial analysts with respect to transition is the need for a single method. We have observed, without surprise, that the existence of choices has introduced bias into financial reports. Any sensible financial manager, given a choice of methods, must select the one that makes his or her firm look best, if for no other reason than not to appear irrational to those who provide capital to the firm. As a result, we tend to see cumulative effect credits appear on current and future-period income statements, while equivalent debits go directly to owners' equity. Given the equality of debits and credits, a new debit to the past can only result in equal credit to current or future periods, sometimes revealed and sometimes not.18 [AIMR/FAPC92, p. 50]

Transition that requires a restatement of prior periods to the new method is preferred to all other methods. Presumably, a change in standards is promulgated to effect improvement. If prior periods' reports can be restated to achieve those same improvements, we will have new information about the past. More importantly, restatement gives financial analysts a head start in constructing a new time-series data base. Restatement starts us off under the new standard with three years of data under the new method. Our only concern with restatement is that it is not in accordance with the concept of comprehensive income which we advocate and promote throughout this report. As a practical matter, however, the comparability attained through restatement for accounting principles changes is more important to analysts than strict adherence to our support of comprehensive income. [AIMR/FAPC92, p. 50]

In some cases, it is impossible or impractical to restate the past for the effect of a newly-issued financial accounting standard. Examples that come to mind are changes resulting from the issuance of FAS 34, "Capitalization of Interest Cost," FAS 52, "Foreign Currency Translation," FAS 76, "Extinguishment of Debt," and a variety of amendments and changes to existing accounting standards.19 In those cases, the cumulative retroactive effect of the change, if it can be computed, should be reported on the current period's income statement separately and with full disclosure. We are unable to perceive conceptual grounds for carrying any such cumulative effect forward and, even worse, using it to smooth the incomes of future periods. If the latter procedure is mandated or allowed anyway, its effect on the income of each and every future period affected not only must be disclosed, it should additionally be presented separately from events of the current year or else highlighted to point it out clearly to otherwise unsuspecting readers of the financial report. [AIMR/FAPC92, p. 50]

In some cases, a new standard may be applied only to transactions originating after a specified date, for reasons that either are practical or political. We believe such treatment is justified only in rare cases, and carries with it a responsibility on the part of reporting enterprises to inform financial statement users of the extent to which that new standard has affected them as long as there are material amounts carried forward from the past under different accounting. [AIMR/FAPC92, p. 51]

__________

[Context] Meeting of the Investor Discussion Group on October 16, 1992. When discussing the types of information they use to achieve their objectives and the way they use that information, some investors made a comments on the comparability of the information.

Participant I-1

The first one on the list (taking out nonrecurring items) is the most common adjustment but the question we have with nonrecurring is whether it really is nonrecurring? If they're taking a $200 million charge every year in the third quarter, is it nonrecurring? You also get into the issue of comparability of statements from year to year because if there is a regular pattern of charge-offs in a given company, generally it will have an industry effect. So you'll have a number of companies in an industry having charge-offs in different quarters and different years. So comparing companies' results with their competitors becomes extremely difficult. Another issue is the components of the nonrecurring charges, how they were determined. You always think a company has taken a very large reserve because they don't want to provide again. [Also included in 1(b)] [TI 10/16, p. 31]

__________

Participant I-11

I think all of us from time to time will make all or most of these adjustments. The issue of comparability is one that arises frequently and is perhaps the most common reason I make adjustments to financial statements. But I am against a real strong stand by the accounting profession on doing away with choices. I'm thinking specifically of the decision made in the interest of comparability that nonfinancial companies had to consolidate their finance subsidiaries. Now when I look at a company, I don't know what I'm looking at. I think that was a terrible decision because it has reduced the amount of information available to me. So, I think we are all for comparability but I'm not sure it's universally good. [Also included in 1(b) and 8(a)] [TI 10/16, p. 33]

__________

Participant I-6

I try to come down to what are the earnings from the current businesses that are there today, and are they going to be the same ones next year? So, if they have written off a complete line of business, I back it out and get rid of it. What I have seen from a couple of companies I follow, and what I would like to see, is two EPS numbers; one is the traditional GAAP reporting number, and one based on the earnings excluding the nonrecurrng items and comparing them to the prior period excluding the same things so that we have some comparability. But that is just starting to come out. [Also included in 1(b) and 5(a)] [TI 10/16, p. 41]

Participant I-1

I think it is also relevant for companies that are oriented toward mergers and acquisitions. You deal with issues of trying to compare apples to apples and trying to find out where is the real growth coming from. [Also included in 1(b)] [TI 10/16, p. 41]

__________

Committee/Staff/Observer

I heard people say that they would like to have more segment information presented the way the company manages its business. But I also heard people say they'd like to have segment information comparable between companies. It seems to me that is contradictory. How do you reconcile that contradiction? [Also included in 3(b)] [TI 10/16, p. 60]

Participant I-7

When I talk about comparability, I'm talking about accounting elements, I'm not talking about segment information. At least in my industry, they're not producing a common product; you shouldn't force two companies to look at their segment reporting in the same way. [Also included in 3(b)] [TI 10/16, p. 60]

[Context] Meeting of the Investor Discussion Group on December 9, 1992. The first part of the meeting was devoted to the topic of disaggregated information. Some comments on comparability were made during the discussion.

Committee/Staff/Observer

The problem with that is that we hear obvious complaints about FASB 14; you want more segment reporting and you also want more uniformity so there can be comparability. There is a dichotomy there: how can different companies report in a way that gives you comparability and at the same time you want the companies the report the way they run their business. Those are two conflicting thoughts. Can we discuss that dichotomy? [Also included in 3(b)] [TI 12/9, p. 6]

Participant I-7

I accept differences, even in the same business, for the companies that I look at. The quality that I demand is information. I want the information so that I can understand those differences and make as clear an interpretation as I possibly can. On my side, I will tell the company that there is information that we, in the public eye, should not receive; union information, early pricing, product strategies, new products, and the like. But there isn't a medium to large size company that doesn't know what their competitor does within a very reasonable order of magnitude. And any analyst around this table will tell you that you tend over time to find out more about a company from the competition than from the company itself. [Also included in 3(b) and 3(c)] [TI 12/9, p. 7]

__________

Participant I-12

Most of the companies I cover are highly regulated and some are just ridiculously regulated. The interesting thing about this is that you have a single business which will have competitors, some of whom are regulated and others of whom are not regulated and abide by different rules. My favorite example goes back to bank and bad loans. When a bank has a bad loan, 100% of the loan has to be noted as not paying interest. Whereas [name deleted] had a loan for $60 million of which $15 million was classified as non-performing; under their reporting rules, that $15 million is their estimate of their potential ultimate loss. Whenever I see anything from them related to loans, I just multiply by 4! I don't know if it's an accounting profession problem but this is an issue, and I doubt that the financial services industry is the only industry with that kind of problem (differential accounting for the same kind of situation). It's very important in terms of line of business reporting. [Also included in 3(b)] [TI 12/9, p. 14]

Participant I-7

That's why I argue for the allowance of differences so long as there is disclosure. [Also included in 3(b)] [TI 12/9, p. 14]

__________

Participant I-12

There are a few companies that change how they look at segments about every 2 years. So you get one year's worth of comparable, then the next year they change it. To try to get a 5 year history is extremely difficult. The company [name deleted] says that they do this because they have reorganized the fundamental way they do the business. It would be nice to have some disclosure to assess how much of the revenues, for example, have been altered as a result of the change. [Also included in 3(e)] [TI 12/9, p. 29]

Participant I-4

[Participant I-12], would [name deleted] recast old figures when they do that? [Also included in 3(e)] [TI 12/9, p. 29]

Participant I-12

They will recast for one year, so you get a year over year comparison. [Also included in 3(e)] [TI 12/9, p. 29]

Participant I-6

I would like to see a 5 or 10 year requirement for segment disclosure. My companies do the same thing, they're constantly reshuffling and reorganizing. I'm not opposed to that but they should give us a 5 year history or give us more detail beyong 3 or 4 major categories of segments, which means that the detail within it is more meaningful. [Also included in 3(e)] [TI 12/9, p. 29]

[Context] Meeting of the Investor Discussion Group on December 9, 1992. Part of the meeting was devoted to the topic of unconsolidated entities. During the discussion, comments were made on the comparability of information.

Participant I-4

I agree. There is also the question of annual comparability in these areas too; changes in the investments and in the joint venture line. [Also included in 6] [TI 12/9, p. 37]

Participant I-6

I think what [participant I-4] might be saying is that it may not be meaningful because it's not comparable and it may be misleading because the current disclosure gives you a sense of security that you shouldn't have. [Also included in 6] [TI 12/9, p. 39]

Participant I-4

That's basically right; you can compare unlike entities and think they are similar. [Also included in 6] [TI 12/9, p. 39]

[Context] Meeting of the Investor Discussion Group on January 13, 1993. Part of the meeting was devoted to the topic of value information. During the discussion, comments were made on comparability.

Committee/Staff/Observer

If you're looking at two companies, one bought a plant in 1992, the other in 1980, so there is a significant difference in costs of acquisition. They both sell the same products to the same customers. How would your analysis be affected, if at all, because the cost structures of the companies would be different? [Also included in 4] [TI 1/13, p. 25]

Participant I-12

Theoretically, on an economic value basis, the two companies selling the same products at the same price ought to be worth the same amount of money. Although there might be some difference in efficiency or deficiency. [Also included in 4] [TI 1/13, p. 25]

Participant I-7

The real market is not going to reflect that; it's looking at the bottom line. [Also included in 4] [TI 1/13, p. 25]

Participant I-5

The financial statements of those two companies are going to look radically different, but you're telling me that they should be valued the same. The only way I'm going to find out that they should be valued the same is to go back and figure out what years the companies bought their plants. I'm going to look at cash flow from operations and required capex to keep you at the same level. It's a much more convoluted process than it would be if the statements were identical. [Also included in 4] [TI 1/13, p. 25]

Participant I-12

If you're looking at cash flow, the only impact that that transaction has on the income statement is the depreciation and the interest expense. [Also included in 4] [TI 1/13, p. 25]

Participant I-14

On the manufacturing company, I find it very hard to believe that the building that was put up in 1980 has not had substantial modifications to produce a product that would be sold in 1992 and that would be reflected in the equipment account. Where something like this would be more appropriate is in the retail field where there are always changes. Also, since retailers predominantly lease, the cost of the leases has an enormous impact on the bottom line. So I think that the more realistic question would relate to retailing rather than manufacturing. [Also included in 4] [TI 1/13, p. 25-26]

[Context] Meeting of the Investor Discussion Group on January 13, 1993. Part of the meeting was devoted to the topic of display. During the discussion on income statement display, an investor made a comment related to the issue of comparability.

Participant I-12

Another point is that companies that run similar businesses report in vastly different fashions. The income statement of [name deleted] is vastly different from the income statements of other kinds of financial companies; yet, their basic business is very similar. So there is an issue of noncomparability for comparable businesses, both in the income statement and the balance sheet. [Also included in 5(a)] [TI 1/13, p. 34]

[Context] Meeting of the Investor Discussion Group on March 17, 1993. Part of the meeting was devoted to the topic of interim reporting. During the discussion, comments were made on comparability of information.

Committee/Staff/Observer

We hear that analysts want 11 years of information. You're suggesting one quarter? [Also included in 1(b) and 11(b)] [TI 3/17, p. 38]

Participant I-7

[I]t's not 11 years, it's 10 years. And we only want 10 if there is consistency. For example, I have companies that are selling businesses every 3 years. Under APB 30, they will go back and only give you 2 or 3 years of historical performance. We have a problem with companies that every several years do something so significant that the historical pattern of earnings or operating returns has been lost. [Also included in 1(b) and 11(b)] [TI 3/17, p. 39]

[Context] Meeting of the Creditor Discussion Group on December 8, 1992. Part of the meeting was devoted to the topic of creditors' objectives and approaches. During the discussion, comments were made on comparability of external reporting.

Participant C-1

If we get just away from segment information, one of the problems that we run into with industry information is the lack of commonality of disclosure. [TC 12/8, p. 21]

__________

Participant C-4

I think there was a question in here as to when we get this information. I would say the better the credit risk, the less information we get, and the less willing management is to provide that information. So I could see some benefit to giving some standardized information to enhance our underwriting of various risks. [Also included in 1(b)] [TC 12/8, p. 26]

__________

Participant C-1

The thing is the smaller the company, the less you need it, because the less likely they are in separate, different segments. A lot of companies . . . that we consider public consider themselves to be non-public. And it should be consistent accounting across all the entities. [Also included in 3(e)] [TC 12/8, p. 34]

__________

Participant C-15

I just have a point on consistency. We compare one company with another, or one company to an industry, and a lot of times it's difficult to obtain the information, be it segment or other types of balance sheet or income statement information, and to be able to do the comparisons on a consistent basis. [TC 12/8, p. 41]

Participant C-6

That's exactly my thought. I see too much differential as far as reporting from, even the same accounting firms, as far as from one year to the next, not getting the same information in the same format. The lack of consistency is sometimes very frustrating. I think that's very important. [TC 12/8, p. 41]

Participant C-14

I perceive a lot of the overload to be in the footnotes, but I also find the footnotes to be the most useful part of the financial statements. And I tried to think of how to enhance the understandability of that information, and I think we started to touch on it when we said well, in the footnotes you find the nominal amount of the swaps, but you really don't know what the impact could be. We also need information on the assumptions used by a company or the reasoning for the assumptions they chose in their accounting methods. For instance, why did [one company] pick a 12% return on plant assets, it's 11 or 12%, when inflation is you know, 3 or 4%? Or why did [another company] depreciate its video over 36 months when the economic life is only four months? I'd like to know more about why they choose those kind of things. Or other examples would be why they've changed accounting standards. [Also included in 1(b), 2(a), 9, and 19] [TC 12/8, p. 41]

__________

Participant C-1

I just would like to second this concept of consistency. It's not a matter of information overload, it's a matter of trying to readjust everything to get some sort of consistent numbers. And with more complicated accounting standards coming out, it's going to become even more complicated and more difficult to get consistent numbers. [TC 12/8, p. 42]

__________

Participant C-13

I have a thought unrelated to the small company issue but that should be laid on the table. That is that many investors, particularly large investors, are relying increasingly on databases for compiling, filing, and using financial information, and that's going to increase very significant when the SEC completes its EDGAR project. So this question of consistency is particularly relevant because the information doesn't go through any kind of quality filter before it gets into the database for comparability from year to year, from company to company, consistency over time. [Also included in 16(a)] [TC 12/8, p. 43-44]

__________

Participant C-15

I think that going forward, the adjustments that we're going to have to make for FASB 106 are going to make everything historically pale by comparison. And that's going to be a real issue in terms of what the disclosures are going to be and trying to get comparabilities when some companies choose to amortize the funded liability, and some companies are writing it off. [Also included in 1(b)] [TC 12/8, p. 45-46]

[Context] Responses to the postmeeting questionnaire of the December 8, 1992 Creditor Discussion Group meeting.

QUESTION 5

b. Many at the meeting expressed a preference for disaggregated disclosures that are consistent with the way management responsibility is delegated within the reporting organization. At the same meeting, suggestions were made for reporting improvements that enhance the comparability of financial reports by industries/disaggregated units within the same industry. It can be argued that allowing/encouraging disaggregated disclosures along the unique lines of authority within an organization frustrates intercompany comparability. That is, similar companies with similar industrial activities might provide significantly different disaggregated information to the extent their internal organizations differ.

Help us better understand your needs by answering the following regarding the relative importance of disaggregated disclosures versus comparability:

i. Do you agree that allowing companies to use subjective criteria for how information is disaggregated could result in less comparable information?

_ YES _ NO

16 1

If NO, please explain your response:

Participant C-3 - Absolutely!

Participant C-15 - Maybe there should be more than one basis of presentation.

Participant C-7 - As a bank, our primary focus is the operations of our borrower. The ability to obtain disclosure is a matter for negotiation, not mandate.

Participant C-12 - 1) Less comparable with what? 2) Most companies manage to units that are fairly obvious, i.e., there aren't many ways to divide a business, and managers at different companies tend to agree on the appropriate divisions (and competitive pressure force companies to align their businesses similarly to competitors). 3) Company management will respond to greater disaggregation by lining up their businesses along common lines: competitions will demand this and investors will demand this.

Participant C-11 - Except for small, single-product companies, there isn't that much comparability in a narrow sense. I vote for relevance and reliability over comparability.

ii. Do you have suggestions for mitigating the effects of disaggregation by management responsibility on comparability?

Participant C-3 - I would never promulgate a standard that uses management responsibility as a basis for disaggregation, because it allows the reporting entity too much leeway in reporting results. You'll get less detail (for example, management could easily realign the organizational structure to support less detailed disclosure).

Participant C-14 - The key is to be able to analyze the cash flow generating capability and resources of the borrowing entity.

Participant C-15 - See i.

Participant C-12 - 1) A lot of companies aren't comparable to anything now, so breaking them into pieces, some of which are more easily compared, will be an improvement on the current situation. 2) Breaking businesses into "unitary" components makes them useful without direct comparisons: (a) level and trend of profits by unit, (b) concentration/diversification of profits.

Participant C-5 - Minimum standards by legal structure, product and geography could sustain comparability.

Participant C-4 - Allow for disaggregation by management responsibility, but require management to disclose why their disaggregation method is preferred and to disclose what industries are proportionately included in their disaggregated segments.

Participant C-11 - No. Ultimately, pressures from analysts and preparers and the good will of company managements are the essential elements for good segment disclosure.

Participant C-13 - I believe that the management responsibility criteria is not the most helpful, but it has the advantage that managements cannot claim that the costs of preparing the information exceed the benefits, since they must prepare the information for due diligence on part of Board, etc. Maybe better definitions and more oversight by SEC of compliance with FAS 14.

iii. If you believe there is an inherent conflict between 1) the management responsibility approach to disaggregation and 2) comparability, which should be given greater importance in financial reporting:

10 _ Comparability

6 _ Disaggregation

Comments:

Participant C-14 - As industry analysts, we tend to know how a company should be performing within the peer group. What we need is to have the disaggregated information to make a more meaningful analysis of the borrowers inherent ability to repay.

Participant C-10 - Our goal is comparing disaggregated data for that one company - not against industry data.

Participant C-7 - In commercial lending, each transaction is somewhat unique, disaggregation would provide greater insight into the operations of our borrowers.

Participant C-12 - I can always make adjustments for greater comparability, but I can't disaggregate by myself.

Participant C-5 - 1) Legal disaggregation, 2) Comparability and 3) Disaggregation.

Participant C-4 - Comparability to industry results and to historic results of the segment are vital. Objectivity and consistency are essential for this comparison.

Participant C-18 - Comparability - STRONGLY!

Participant C-9 - Those interested in further information by management responsibility may well be in a position to request it.

Participant C-2 - Comparability is critical to the comparisons of a borrower's financial information to others within the same industry, which is an integral part of the credit analysis.

Participant C-13 - Tough call!

[Also included in 3(b)] [PMQC 12/8, p. 13-16]

[Context] Meeting of the Creditor Discussion Group on February 2, 1993. Part of the meeting was devoted to the topic of value information. During the discussion, a comment was made on qualitative aspects of external reporting.

Participant C-4

We rely on the consistency and comparability of historical cost analysis. I don't think that the information we'll be getting from an auditor on fair market value is information that would not otherwise be available to us. We feel that historical cost consistency is much more important in our analysis than fair market value. [Also included in 4] [TC 2/2, p. 3]

[Context] Meeting of the Creditor Discussion Group on February 2, 1993. Part of the meeting was devoted to the topic of alternative accounting procedures. During the discussion, comments were made on qualitative aspects of external reporting.

Participant C-14

As a matter of policy, comparability of financial statements should have a really high priority. In some areas, I guess, you could make arguments for why some companies do it one way versus another. For the most part I guess I prefer that they have disclosure rather than eliminating choices. [Also included in 8(a)] [TC 2/2, p. 36]

Participant C-5

We do make some conversions, primarily the inventory conversion. But I think the concept of consistency among financial statements is important. And I think it will become increasingly important over the next five years. [Also included in 8(a)] [TC 2/2, p. 37]

Participant C-13

Philosophically, I'm in favor of one measure of accounting. What [participant C-14] said about comparability, I couldn't agree with him more. [Also included in 8(a)] [TC 2/2, p. 38]

Committee/Staff/Observer

Within the same company? [Also included in 8(a)] [TC 2/2, p. 38]

Participant C-13

No, within the industry, between other alternative investments. What the institutional investor is doing is choosing between a broad range of alternatives, not looking at one individual lending decision. When you're lending, you're not deciding whether you're going to lend to this company or that company. And to the extent that you have comparability, direct comparability between the statements of one or the other, it makes the job easier. You don't have to make the various adjustments. Now, in the case of full cost and successful efforts, there isn't enough information on the statements in order to make those kinds of comparability judgments. You've got to get behind it and find out. I do think of the four that are mentioned, I don't think we'd have any problem about trade date and settlement date. [Also included in 8(a)] [TC 2/2, p. 38]

[Context] Meeting of the Creditor Discussion Group on March 11, 1993. Part of the meeting was devoted to the topic of auditor involvement. During the discussion, comments were made on qualitative aspects of external reporting.

Participant C-7

I think one of the benefits on the credit side is the consistency over time for comparability, as we make our credit decisions with our borrowers and continue to monitor the relationship. We are measuring the same things over time so that we have a feel for the true performance of our borrowers. [Also included in 17(a)] [TC 3/11, p. 1]

__________

Participant C-17

I think that what really shakes the confidence of the user community is the propensity to have a series of surprise adjustments or write-offs. And it always seems to group itself around periods of economic stress. Clearly, something is not happening. I think that what we want is simple enough: adequate disclosure. All of us want independence. In terms of the accountants' participation in projections and all that sort of thing, we really would rather hear it from our company. We want consistency. It's very difficult to make accurate assessments about what's going on with a company if they're changing the way they make their presentation every quarter, or even every year. And lastly, the one that really comes home, again in periods of stress is that we have some confidence in the reliability of the numbers we're looking at. That they were accurately tested in terms of statistical evaluations. They were realistically valued in terms of their collectibility and their working inventory. There are certain areas, such as inventory and receivables, that are consistent sore spots that I become more and more suspect of, especially as we go into a cyclical downturn. [Also included in 17(a)] [TC 3/11, p. 13]

[Context] Meeting of the Creditor Discussion Group on March 11, 1993. Part of the meeting was devoted to the topic of conservatism, volatility, reliability, and neutrality. During the discussion, a comment was made on consistency.

Participant C-11

I basically don't like the word conservative at all because it could be misinterpreted in the way that others have just spoken of in terms of "if there's any question make it a very low number and end up having undervalued assets and ineffective reserves". The word realistic or relevant to the situation is more appropriate. And consistency also is important. Consistency of application so that you don't get what I would call artificial, arbitrary swings in numbers because, in this case, they've been valued too low and then something transpired and they had to be written back up or whatever. [Also included in 2(b)] [TC 3/11, p. 42]

[Context] Meeting of the Creditor Discussion Group on March 11, 1993. Part of the meeting was devoted to the topic of structure and process. During the discussion, comments were made on qualitative aspects of external reporting.

Committee/Staff/Observer

We have a migration process for change when you make changes gradually over a period of four or five years. What does that do to you as users in terms of comparability? We've heard you say you want ten years restated of information when there is a change and every time you have a change it causes you to have to retrain your people and maybe adapt your systems. How do we solve the preparer resistance by going to a migration problem and create one for you? [Also included in 18(c)] [TC 3/11, p. 66]

Participant C-5

Well, some of this is scope. Obviously if you're talking a Fortune 500 company, you apply the standards on almost a consistent basis but I'm talking more scale, size of company issues. We train junior analysts off the senior people so the senior people work the biggest companies. That passes down. You've got your own internal transition process. We don't train somebody who has a year on the job in the current accounting conventions because they really are irrelevant for the cases they're analyzing. We already accept that fact because we're getting tax returns and we're getting review statements now. We're living with less disclosure and differential statements even though you don't have different standards. [Also included in 18(c)] [TC 3/11, p. 66]

Participant C-2

I would like to go back to the idea of differential standards; there may be a very different view in terms of that, particularly for smaller institutions where we may depend on information that's accumulated by trade associations and so forth where they may not screen out who adopts something early or where companies may be in that process. It has the potential to severely disrupt comparability. And that is an important tool that I think has to be considered. [Also included in 18(c)] [TC 3/11, p. 67]

Participant C-8

I agree. A lot of smaller end companies are not going to make radical changes and we're going to spend a lot more of our time trying to reanalyze the information and bring it back to being comparable. [Also included in 18(c)] [TC 3/11, p. 68]

Participant C-13

I just wanted to respond to what [committee/staff/observer] said about gradual change. We think that the transition periods are too long now. It's going to be 20 years before [two companies'] numbers are comparable because of the decision they made on FAS 106. [Also included in 18(c)] [TC 3/11, p. 68]

[Context] Responses to the postmeeting questionnaire of the December 9, 1992 and January 13, 1993 Investor Discussion Group meetings.

QUESTION 2

a. Many participants at the December 9, 1992 meeting expressed a preference for disaggregated disclosures that are consistent with the way the company views itself and reports internally. At the same time, participants have emphasized the need for comparability of financial reports among companies, particularly within the same industry. Unfortunately, segmentation based on internal reporting may be inconsistent with better comparability. That is, similar companies with similar operations might provide significantly different disaggregated information solely because their internal organizations differ.

However, our understanding is that investors would prefer segment reporting consistent with the way the company views itself internally, rather than based on other approaches that would result in more comparable disaggregated information among companies. In other words, in the area of segment reporting, investors assign greater importance to the relevance of information based on internal reporting than to comparability among companies. Is our understanding correct?

Yes  6                               No  1                                

If NO, please explain :

Participant I-9: Comparability is more important and lends itself to less management "abuse" or manipulation. The problem is how to sort out companies into industry groups without forming too many or too few. Aluminum companies are homogeneous but retailers cover a broad range - wholesalers, supermarkets, department stores, etc.

b. Do you have suggestions for mitigating the effects on comparability of disaggregation based on the way the company views itself and reports internally?

Participant I-9: This is hard to answer without knowing how internal reports differ from each other. For instance, the [name deleted] reports to Directors years ago were designed to prevent anyne from figuring out how profitable the [name deleted subsidiary] partnership was. It was virtually impossible to reconcile internal financial reports with shareholders financial reports. Perhaps there have to be standards that are generally accepted for internal statements.

Participant I-11: In many cases, I think the differences will be small. In any event, I think the value of "comparability" is overstated- the variations in accounting practices between companies can reduce "comparability" enough to make it of little value.

Participant I-12: Most companies in a given business will tend to organize internal reporting systems in a surprisingly similar fashion - ex. all credit card companies track similar info. because it is inherent in the business. As long as information is disclosed, analysts can make adjustments for major discrepancies.

[Also included in 3(b)] [PMQI 12/9 and 1/3, p. 3]

[Context] The paper is a summary of a committee and staff members' discussions with selected sell-side analysts from Bear Stearns:

[One analyst] expressed the following . . . regarding his approach to securities analysis: [Also included in 1(a), 1(b), and 15] [BEAR STEARNS, p. 1]

It is critical that there be consistency in the application of accounting principles, not only for purposes of comparing a company's performance over a period of time, but in comparing a company against other companies in the same industry. For example, the flexibility provided by FASB Statement No. 86 (software costs) allows flexibility in determining the point at which software product development costs should begin to be capitalized. Depending upon the company's approach to software development, a relatively large portion or relatively small portion of software development costs can be capitalized, resulting in diminished comparability between software companies. (He would prefer that companies expense all software development costs.) [Also included in 1(b) and 15] [BEAR STEARNS, p. 1-2]

To improve financial reporting, from an analyst's point of view, [one analyst] recommended . . . the following. . . : [Also included in 1(b), 3(a), 8(d), 15, and 17(d)] [BEAR STEARNS, p. 2]

Improve comparability in the use of accounting principles between companies within the same industry. For example, the transition provision in FASB Statement No. 106 (OPEBs) that allows companies to adopt the Statement either by cumulative adjustment or by recording a transition obligation and amortizing that obligation over a long period of time, results in diminished comparability of otherwise similar companies. [Also included in 8(d) and 15] [BEAR STEARNS, p. 2]

[Context] For companies in the precious metals business, the Mining Industry Subcommittee of the AIMR Corporate Information Committee would like to see improvements in reporting the following:

Consistent operating data should be available that can, in some way, be related to reported financial data. [Also included in 15] [AIMR/CIC91, p. 2]

Most [CIC] subcommittees agree . . . [that] the following suggestion seems appropriate: [Also included in 1(b), 2(b), 3(b), 3(d), 5(a), 5(d), 11(a), 13, and 16(b)] [AIMR/CIC92, p. 3]

Quarterly reports with timely data presented in a format comparable to that of the annual report. [Also included in 1(b), 2(b), 11(a), and 16(b)] [AIMR/CIC92, p. 3]

Reports should be prepared under a standard format. Companies that use the metric system should provide appropriate tables for conversion, while companies seeking foreign investors should state appropriate currency exchanges rates. [Also included in 1(b) and 16(b)] [AIMR/CIC92, p. 3-4]

__________

Overall, we believe that the FASB is doing a good job. We do, however, have two major concerns:

1. The inconsistency, standard-to-standard, and alternatives within standards, of effective date and transition provisions for new pronouncements;

2. Destruction of financial data without commensurate improvement in the financial information provided. . . .

[Also included in 18(e)] [AIMR/FAF91, p. 7]

Objectives of the FASB

Objective 1 [Improve the usefulness of financial reporting by focusing on the primary characteristics of relevance and reliability and on the qualities of comparability and consistency]. Overall we believe that the FASB has done more to improve the usefulness of financial reporting by focusing on relevance and reliability than it has to improve comparability and consistency. [AIMR/FAF91, p. 7]

The diversity of approaches taken to the effective date and transition provisions for new standards has created major problems of comparability and consistency for users of financial statements. Standards having major financial statement impacts have generally been issued with a delayed effective date, although early adoption has been encouraged. Most recent pronouncements could be adopted in any one of three years. However, there was a five-year period before FAS 87 (Pensions) was fully effective for both domestic and foreign plans. This has given companies a choice of years in which to adopt, preventing comparability company-to-company even within an industry. Obviously there is no hope of reasonable comparability of financial statements among industries. [AIMR/FAF91, p. 8]

In addition to being able to choose the year in which to adopt, some of the major pronouncements also permit a choice of how to adopt. FAS 91 (Loan Fees), for instance, permits retroactive application or prospective application. The choices under FAS 96 (Deferred Taxes) are numerous and complex. [AIMR/FAF91, p. 8]

These problems are not new. Statement No. 13 (Leases) was issued in 1976 but not required until 1981. Statement No. 52 (Foreign Currency Translation) had the more typical three-year choice and permitted, but did not require, restatement. Analysts have always found lack of comparability a nuisance. In the past, however, there were very few pronouncements that had a material impact on virtually every company and these pronouncements were issued years apart. Analysts were generally able, with a little effort, to come to reasonable conclusions about the impact of a new statement on individual companies. [AIMR/FAF91, p. 8-9]

Unfortunately, the frequency with which major pronouncements have appeared within the past five years, their complexity, interrelationship, and the ongoing nature of the accounting adjustment has made it almost impossible for the analyst to restate results on a comparable basis for a period of years. [AIMR/FAF91, p. 9]

We are not suggesting that the FASB issue fewer pronouncements, which is an unacceptable solution. We have requested that the FASB consider simplifying the procedure for adopting new pronouncements by making them effective for everyone in a single year and prescribing only one method of adoption. [AIMR/FAF91, p. 9]

In some cases financial data have been destroyed without commensurate improvement in the financial information provided. Financial analysts generally do not rely on a single year's results to make their decisions. They typically gather information for a long period of time and analyze trends and relationships. (Five years of historical data is common; ten years is preferred. Recognizing the importance of understanding corporate results over more than one business cycle, AIMR's Corporate Information Committee, which annually evaluates the status of corporate reporting, encourages eleven-year financial histories. Some industry subcommittees provide bonus points for twenty-years of historical data.) [Also included in 1(b)] [AIMR/FAF91, p. 9-10]

A change in accounting principles destroys the comparability of data before and after the change. Even when the FASB requires restatement it provides analysts with only three comparable income statements and two comparable balance sheets. Occasionally, analysts have sufficient information to estimate the impact on earlier years and are able to restate the results themselves. Some companies take the time to assist analysts to understand the pre- and post-change data. Generally, the ability to analyze trends over a long period is simply destroyed. [Also included in 1(b)] [AIMR/FAF91, p. 10]

We do not mean to suggest that the FASB retreat from providing necessary new accounting standards. Prompt action is expected when existing GAAP is inadequate and misleading. [AIMR/FAF91, p. 10]

However, we believe that the destruction of financial data is a cost to users of financial statements that should be considered when the FASB makes its decisions about a new standard. If the new standard does not produce significantly better information (more relevant and more reliable), then a new pronouncement should not be implemented. [AIMR/FAF91, p. 10]

Many analysts believe that at least three standards adopted within the past five years--(Statements Nos. 94 (Consolidations), 96 (Deferred Taxes), and 97 (Insurance Company Reporting)--do not meet this criterion. [AIMR/FAF91, p. 10]

Consolidation (Statement No. 94) theoretically may be the correct answer, but for many users the destruction of the financial data base far exceeds any advantage of having consolidated statements. A few major corporations have understood the problem and are providing separate supplementary financial statements or consolidating financial statements in their annual reports. The user can only hope that more managements will understand the importance of the loss of the disaggregated information and provide it on an annual and quarterly basis. We also encourage the FASB to expedite its review of FAS No. 14, Financial Reporting for Segments of a Business Enterprise. [Also included in 3(c)] [AIMR/FAF91, p. 11]

FAS No. 96 (Deferred Taxes) was intended to repair faults evident in the results of applying APB Opinion No. 11. Unfortunately the new standard provides confusing and incomprehensible results equal to that produced by the old. Many users believe that Statement No. 96 does not provide a gain in reliability or relevance that makes up for the cost of the destroyed data. [AIMR/FAF91, p. 11]

FAS No. 97 (Long-Duration Contracts of Insurance Enterprises and Realized Gains and Losses from Sale of Investments) requires insurance companies to discontinue their long-standing practice of reporting realized investment gains and losses on a separate line in the income statement below operating income and net of applicable income taxes. Many would agree that this change is theoretically correct. The old presentation, however, provided information about the impact of management's investment decisions on the company's operations. FAS 97 destroyed the analyst's data base without providing information that is more relevant or reliable. [AIMR/FAF91, p. 11-12]

Precept 4 [To bring about needed changes in ways that minimize disruption to the continuity of reporting practice]. To minimize disruption to the continuity of reporting practice, we believe that the FASB should eliminate alternatives and establish one effective date for implementation. We discussed the problems inherent in the disruption of the continuity of reporting practice earlier in this response. [Also included in 18(e)] [AIMR/FAF91, p. 25]

__________

User Survey Results, Users: The comments made by analysts in the focus group meetings were generally consistent with and supportive of the survey results. Although direct comparisons are not possible, inferences were drawn. The table below presents the main conclusions from the survey with responses from the focus groups: [Also included in 2(b), 4, 5(a), 5(b), 5(d), and 13] [KPMG BANK STUDY, p. 39]

Generally believed fair value disclosures of financial instruments would be useful provided they were reliable and comparable [Also included in 2(b) and 4] [KPMG BANK STUDY, p. 39]

The FASB, the Securities and Exchange Commission (SEC) and other regulatory bodies are currently considering a requirement to prepare financial statements based on market values in place of financial statements prepared on a historical cost accounting basis. The questions in this section relate to this issue: [Also included in 1(b), 2(a), 2(b), 4, 10(b), 11(a), and 15] [KPMG BANK STUDY, p. A-9]

Indicate whether you believe fair value accounting should be the primary accounting basis for the preparation of an institution's financial statements.

10% Yes

90 No

0 No opinion

[Also included in 2(a), 2(b), 4, and 15] [KPMG BANK STUDY, p. A-9]

[One user commented] no. It is difficult to determine the fair value of many assets and liabilities. This could distort financial statements and hinder comparability. [Also included in 2(b), 4, and 15] [KPMG BANK STUDY, p. A-9]

[One user commented] no.

--Misrepresents "lending to maturity" aspect of bank loans.

--Concern about behavioral impact on bankers.

--Costs more to gather information than benefits users.

--Too much estimation required; comparability and integrity [are] questionable.

--Misuse of information by less-sophisticated users.

[Also included in 2(b), 4, and 15] [KPMG BANK STUDY, p. A-10]

High degree of subjectivity, and the inherent uncertainty of forecasts on which valuations are based, will diminish both the consistency and comparability of financial institutions' reports.

[Also included in 2(b), 4, and 15] [KPMG BANK STUDY, p. A-10]

There are current accounting rules that require the disclosure of fair values, realized and unrealized gains and losses, cash flow information and maturities and yields of investment securities. Considering that this information is already available, indicate whether you believe the historical cost based accounting should be replaced with fair value based accounting.

8% Yes

88 No

2 No opinion

2 No response

[Also included in 2(a), 2(b), 4, and 15] [KPMG BANK STUDY, p. A-11]

[One user commented no]. Much of the additional information that would be available with fair value accounting must be based on estimates which are likely to incorporate varying assumptions and therefore, is unlikely to be reliable or consistent. Further, much of what is proposed is irrelevant for valuing a banking company. [Also included in 2(a), 2(b), 4, and 15] [KPMG BANK STUDY, p. A-11]

For an institution that has the intent and ability to hold assets for the foreseeable future (defined as 12 to 18 months), indicate whether you believe fair value accounting is appropriate.

30% Yes

60 No

8 No opinion

2 No response

[Also included in 2(b), 4, 10(b), and 15] [KPMG BANK STUDY,

p. A-13]

[One user commented] yes. Some effort at fair value accounting is still useful for these organizations. However, if the subjectivity involved is too great for certain loans so that comparability is destroyed, I would favor historical cost with an explanatory footnote. [Also included in 2(b), 4, and 15] [KPMG BANK STUDY, p. A-14]

__________

From what has briefly been described of the [foreign] financial analysts' work, there results a series of requirements with regard to accounting data, which are but insufficiently met at present. We have broken them down into . . . major categories. [Also included in 1(b), 2(d), 3(c) 4, 5(a), 5(c), 6, 8(a), 9, 11(b), 11(c), and 15] [BETRIOU, p. 1]

If it is accepted that the existence of options leads accountants to make different choices, the comparison between companies may nevertheless require the elimination of the incidence of these choices. Published data does not always allow for such process. Consequently, IASC's efforts to reduce the number of options seems to us positive. Such an orientation should also be sought at the European level. [Also included in 1(b) and 15] [BETRIOU, p. 2-3]

The case of companies modifying their structures is worth mentioning: comparability in time would be greatly improved by the publication of data with a constant structure over three years (two years are often insufficient to determine trends). [Also included in 1(b) and 15] [BETRIOU, p. 3]

In consolidated accounts in particular the impact on the profit and loss account, over a full year, for recently consolidated or deconsolidated companies becomes requisite data in order to make estimates. In our opinion this should be published. Alterations in the consolidation circle during the financial year are presently made "pro rata temporis". [Also included in 1(b) and 15] [BETRIOU, p. 3]