5(b). Balance Sheet
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 . . . the needs of users. [FASOversight, p. 1]
Recognition of financial transactions in the basic financial statements is preferable to disclosure only. [FASOversight, p. 2]
__________
The APC [Accounting Policy Committee] has considered and expresses below its opinions on a number of specific issues affecting financial accounting standards and financial reports. The APC believes that the following items should be included in the single body of accounting concepts, standards, principles and methods: [RMA90, p. 5]
Liabilities of a company are legal obligations to creditors to be paid, in most instances, at a specific future time (maturity date) or at the happening of a specific future event such as failure to comply with one or more loan covenants (default). Such obligations should be included on the balance sheet until the credtior has been fully satisfied and there is no continuing recourse to the debtor with respect to the debt. Liabilities should be classified as either current or noncurrent on the basis of the written terms of the borrowing document, including any amendments. A debt due within one year should be classified as current regardless of the probability that it will be renewed, refunded, or otherwise not be repaid within that period. [RMA90, p. 7]
Financial assets and liabilities represent agreements to convey specific amounts of cash from borrowers to lenders at specific future dates. Interest represents the difference between the amount borrowed and the aggregate amount to be repaid. The rate of interest implicit in a financial obligation is established at the inception of the agreement and is called the historic rate. Interest revenue (expense) should be reported periodically on the income statement by applying the historic rate to the unpaid balance of the obligation at the beginning of the period. Interest accrued in excess of a period's payments should be added to the debt; payments in excess of interest accruals should be deducted. [Also included in 4] [RMA90, p. 9]
In cases where the initial borrowing involves consideration other than cash, the historic rate of interest should be estimated by reference to rates of interest on debt instruments of similar duration and risk. In all cases, there should be disclosure of information that allows financial statement users to know or calculate the contractual amounts of cash payments required by the obligation, both periodic ("coupon") and final ("face"). [Also included in 4] [RMA90, p. 9]
__________
The balance sheet receives far less attention than the income statement [by equity sell-side analysts], and the occurrences of balance sheet type words and phrases occur far less frequently [in analysts' reports]. Much of the attention to balance sheet items comes in the form of liquidity and cash flow analysis. For example, reports may assert balance sheet strength on the basis of a company's free cash flow. While several income statements are almost always presented, many reports contain only summary balance sheets. [Also included in 1(b), 1(c), and 5(c)] [PREVITS, p. 17]
Long term productive asset values on the balance sheet are nearly always evaluated at cost [by equity sell-side analysts]. The effect of inflation on such assets rarely is explicitly considered. However, for some companies, a supplemental analysis of assets' market value is conducted. This is undertaken for firms analysts consider to be poorly understood by other analysts and investors, and particularly where latent significant off-balance-sheet or hidden assets may exist. [Also included in 1(b), 1(c), and 4] [PREVITS, p. 17]
[A]nalysts asserted that a cable television company had substantial off-balance-sheet assets in the form of residual payments to be received in the future. They calculated the value of the company using several methods, one being the present value of the anticipated cash flows from these residuals. One analyst stated that "balance sheet recognition of . . . hidden asset values . . . will occur in future years". Other examples include inventory and reserve valuations of extractive industry companies. For instance, in gold mining companies, a market value appraisal is included of the reserve values by ore type. [Also included in 1(b), 1(c), 4, and 5(c)] [PREVITS, p. 17]
[Equity sell-side] analysts periodically examine the quality of assets, particularly in troubled industries such as banking and insurance. Here, attention is paid to nonearning assets, non-performing assets, and the quality of assets (loan portfolios) and investments. [Also included in 1(b) and 1(c)] [PREVITS, p. 17]
Liabilities are usually addressed in a summary fashion, often in a simple analysis of the capitalization of the corporation. Extensive attention to liabilities usually only occurs for companies that are highly leveraged and typically in conjunction with a cash flows analysis. [Also included in 1(b), 1(c), and 5(c)] [PREVITS, p. 17]
__________
Over the span of the FASB's existence, its pronouncements have become more and more oriented to the statement of financial position. This is meant as an observation, not criticism. [Also included in 5(a) and 5(c)] [AIMR/FAPC92, p. 41]
Perhaps the most apt example is FAS 109, "Accounting for Income Taxes." It fixes its attention on identifying at a point in time those transactions and events that are deemed to have future tax consequences, then measuring the effect on financial position of the benefit(s) and/or obligation(s) resulting from them. Their effect on periodic income is calculated only as the necessary consequence of those financial position assessments. This is an approach opposite from the now-superseded Accounting Principles Board Opinion 11 in which the objective was to measure the deferred portion of the current period's provision for income taxes, with resultant balance sheet residuals called deferred tax liabilities and/or assets. [Also included in 5(a) and 5(c)] [AIMR/FAPC92, p. 41]
We applaud the efforts and accomplishments of the FASB in making balance sheet amounts more meaningful than before. Prior to FAS 109 (and its short-lived predecessor, FAS 96), deferred tax accounts on the balance sheet had little meaning since they were remnants of past income statements, whereas today they depict amounts that the enterprise expects to result in future cash flows. However, as FAS 109 and various other standards have been promulgated we feel that the development of the income statement has been neglected. We also feel as if more could be done to make cash flow statements more accurate and more useful to analysts. The purpose of this short section is to summarize our views on those matters: (a) with respect to the income statement, primarily to summarize information scattered throughout earlier parts of this report; (b) with respect to cash flow statements to introduce new material. [Also included in 5(a) and 5(c)] [AIMR/FAPC92, p. 42]
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[Context] Meeting of the Investor Discussion Group on October 16, 1992. During the discussion on the types of information investors use to achieve their objectives, some participants referred to some aspects of balance sheet display.
Participant I-7
I can ask for it. Let me follow with another point. Especially in the financial area, if companies are setting up reserves, I would like to see when the reserves are used. I would like a stream of information as the assets are written off about what part of the reserves has been applied against those assets. [Also included in 1(b) and 13] [TI 10/16, p. 45-46]
Participant I-12
Any financial business ought to be reporting an average balance sheet and the accounting for the loss reserves. The year end balance sheet can totally distort the entire enterprise. [Also included in 1(b)] [TI 10/16, p. 46]
Participant I-1
The point about the treatment of the reserves is an excellent one. Breaking out the reserves from the general accruals category would be worthwhile because when you do have reserves year after year, you don't know what is in there. And as they are applied, some information as to how they are applied to specific assets and how they are relieved is a terrific idea. [Also included in 1(b)] [TI 10/16, p. 46]
In the way of additional information, a break up between maintenance and gross capital expense and the same for R&D would be worthwhile. On the revenue side, price volume information is provided by some companies; for example, supermarkets provide that information. [Also included in 1(b) and 13] [TI 10/16, p. 46]
Participant I-7
Especially in this kind of environment where an increasing number of companies are taking significant charge offs that can go in excess of $1 billion, it gets back to the cash flow issue. At the time of the charge off, it's a non-cash flow issue, but to the extent that a good portion of those dollars are going to be used either to lay people off over a period of time or to physically close plans, I would like to get some sense of how that cash has been used out of that restructuring charge. [Also included in 1(b)] [TI 10/16, p. 56]
Participant I-1
It goes back to relieving the reserve account. [Also included in 1(b)] [TI 10/16, p. 56]
[Context] Meeting of the Investor Discussion Group on January 13, 1993. Part of the meeting was devoted to the topic of display.
Committee/Staff/Observer
Let's move on to balance sheet display. As you know, under current rules, the balance sheet is classified by type of asset or liability, which are reported in rough order of liquidity or timing of payment. That display does provide information about the nature of the company's assets and liabilities, and the operation of its business, but perhaps better display could provide even more useful information. The meeting materials identified three areas in which better display might assist you. First, perhaps it could help you better understand uncertainties about the company's assets and liabilities. Second, perhaps it could assist your identification of unusual or nonrecurring items. And third, better balance sheet display could improve your insight into the company's business. The meeting materials provided some ideas in each of those categories. We are interested in your reactions to those ideas and other ideas that you have about balance sheet display that would be useful in your work. [TI 1/13, p. 35]
Participant I-14
I think the identification of past-due receivables, or the aging of receivables, would be very helpful in certain cases. [TI 1/13, p. 35]
Participant I-5
And also inventory. Those two things. [TI 1/13, p. 35]
Participant I-11
I'm not sure that presentation would be terribly helpful for the companies I follow. For a lot of industrial distribution companies, one of their principal roles is being a banker for their customers, and a lot of their receivables are "past due". But some sort of information about the quality of the receivables and the inventory, whether it is the basis under which the reserves are established or historical experience, would help me get a better handle on how good those assets are. [TI 1/13, p. 35]
Participant I-12
One of the analysts in our shop is continually talking about how [name deleted] lends its inventories to car rental companies in essence. This creates real issues in terms of uncertainties and risks with regard to whether they're reporting true sales or not. There are a number of companies in a similar situation where what appears as sales are really contingent sales. This isn't fully disclosed. [TI 1/13, p. 35-36]
Committee/Staff/Observer
I think it's more than a display issue. It's something the SEC spends a lot of time on, that is, the appropriateness of revenue recognition. But I agree it's an issue. [TI 1/13, p. 36]
Committee/Staff/Observer
Any interest in showing operating assets separate from nonoperating assets on the balance sheet? [TI 1/13, p. 36]
Participant I-8
Yes, but I always assumed that we already did. Am I wrong in making that assumption? [TI 1/13, p. 36]
Committee/Staff/Observer
Yes, I think so. [TI 1/13, p. 36]
Committee/Staff/Observer
How disruptive would it be if you didn't have a balance sheet? [Also included in 5(c) and 11(c)] [TI 1/13, p. 36]
Participant I-8
Very. I can remember when quarterly balance sheets were a rarity. An income statement is worthless without a balance sheet. I would also love to see a quarterly cash flow statement. [Also included in 5(c) and 11(c)] [TI 1/13, p. 36]
Participant I-12
For a financial intermediary, you have to have a balance sheet because that's what generates the income and expense. [TI 1/13, p. 36]
Participant I-8
I would go one step further. I am seeing a lot of abbreviated balance sheets; current assets, current liabilities without the detail is worthless also. I really care about changes in inventory and whether some of the earnings are a result of inventory building, for example. So I find an abbreviated balance sheet inadequate. [TI 1/13, p. 36-37]
Participant I-7
My concern is that, for the most part, I don't take issue with the balance sheet display but it doesn't go far enough. If you were to include some of the suggestions we made, the balance sheet would get very cumbersome. For example, on the liability side, I want to see information about letters of credit, off-balance-sheet contingencies. I don't know how you take an existing balance sheet and display that additional information without creating some viewable problems. So my position is not to fool with the current balance sheet display, but give us additional information in the footnotes. [TI 1/13, p. 37]
[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, some comments were made on balance sheet display.
Participant C-4
I deal with a lot of smaller companies that probably a lot of you, revenues of $50 million and less primarily. Understanding core earnings is a key to our analysis, and I see no consistency in footnotes of supplemental information that we're receiving for customers of that size. One good example of what we need would be a cost of sales breakdown. That helps us assess cash flow, assess profitability, gross profits, and what's causing the gross profits to fluctuate, what's causing the cash flow to fluctuate. Overhead schedules are very important, and in percentage of completion accounting, open and closed job schedules are essential in determining the success and the prospects of the company that we're trying to grant credit to. [Also included in 5(a) and 15] [TC 12/8, p. 27-28]
[Context] Meeting of the Creditor Discussion Group on February 2, 1993. Part of the meeting was devoted to the topic of display.
Committee/Staff/Observer
On page 10 of the meeting materials, we had a similar discussion on the balance sheet. What do you look at in the balance sheet that is helpful in getting trend information for the future? For example, sometimes it's a qualitative analysis. Sometimes it's quantitative in terms of knowing how those numbers are going to roll off. But in any case, you look at the balance sheet and that tells you something maybe about the future. The first question, in terms of display, has to do with the uncertainties of reported assets and liabilities. Do you need more information about details about balance sheet items, such as past accounts receivable, aging of payables, and we could go on from there. Do users have a need for that information and, if so, are you getting that now in any way or not? [TC 2/2, p. 18]
Participant C-2
I would say users do have a need for that information and generally will get it. But I think it would be very helpful that some of these things would be readily available as part of financial statements. Particularly some information about the quality of receivables, the agings of payables and receivables. Also the nature of slow moving or obsolete inventory, if that could be disclosed. I think also for businesses that are highly seasonal, if you could give some indication of high/low average receivables, payables, or inventory levels, that would be helpful information. Yes, you do have to get it to do your underwriting. Some of that will already be available to you. I worry a little bit about companies' willingness to disclose some of these. They consider it to be proprietary. [Also included in 2(d)] [TC 2/2, p. 18]
Participant C-4
A lot of times it may be difficult to release records of the company so if the accountants could standardize that information it would be helpful. Also, going back just for a second to the prior question about what additional information for the income statement. If some of the supplementary information that the accountants provide could be standardized, it would help in analyzing cash flows and doing some standard tests of balance sheet items. That type of information, if it's standardized, makes it a lot easier for an analyst to discuss with management and, looking at their internal records, to make comparisons based on year-end audits between companies. [Also included in 5(a)] [TC 2/2, p. 18]
Participant C-14
One area that we find has a marvelous predictability when we get it is good information of inventories. It usually tells us a lot about the company's competitive position and whether it's on target with its customers. Unfortunately, because of what's available, we tend to look at the gross level of inventory and see if inventory's rising. That immediately puts up a red flag. And your only option is to go to management, discuss it, and then you're really just listening to whatever they have to say and you have no idea what's happening. If we had an idea of slow moving inventory. If there was a way we could say, inventory over six months or whatever, it would really tell us a lot. And even just finished goods inventory over a certain age would have a tremendous value. [TC 2/2, p. 19]
Participant C-5
I just had a company analysis case where we came across a very distorted day's inventory ratio. And it turned out they were doing a ton of spot trading on inventory. And it had only come up in a discussion of some senior people as we were talking about the case and wondering what didn't look right here. This was something in audited financials that I should have had a better sense of. [Also included in 17(a)] [TC 2/2, p. 19]
Participant C-7
We're always going back to the customer asking for supplementary information about the agings of receivables and payables, and the inventory break-downs. From our standpoint, that's crucial information. [TC 2/2, p. 19]
Participant C-17
Kinds of stuff that would come to my mind is capital expenditure and inventories. What is mandatory or what's repaired, what's unfunded? ... Backlogs or the businesses that are affected by backlogs. What is it? Comparative basis? The inventory, the display, finished, in process, raw, supplies, whatever you may call it, slow moving? Receivables? It drives me nuts when I can't find a provision. Or you can't find what the allowance is, you don't always see a provision. So how do I know what the bad experience is? Borrowing: I hate trying to figure out what maturity horizons are. Fixed assets: categories? Plant? Leasehold improvements? It frustrates me when I look at the liability side and I can't identify trade payables because it's buried in with unrelated payables or accruals. Those kinds of issues come up. I think what most analysts do is they have a group of favorite ratios and they're pretty standard. And you tend to analyze the company around these but when you can't get to the data. When you can't even identify how to do the calculation, then you're forced to go back to management, and you're not sure, you have no independent verification. [Also included in 13 and 17(a)] [TC 2/2, p. 19-20]
Participant C-14
On the liability side, information has become very convoluted and has to do with non-recurring and recurring classification. A lot of companies are classifying commercial papers as internal debt if they plan to roll that paper over. The problem with that is that the information that we can get from current liabilities is an idea of maturities so that we can assess rollover risk itself. The reason to show that as a one-year maturity or less is so that we can assess how much do the capital markets have to keep supplying to this company. The issue is also clouded by swaps, whether the liability is fixed versus variable. [TC 2/2, p. 20]
Participant C-17
On the asset side, accountants tend to only allow current assets to the extent that they're going to be intended to be turned into cash. On the liability side, accountants have used a form test that says if this requires repayment under its terms, notwithstanding whether it will be paid, it has to be a current liability. So you don't necessarily have apples and apples. Notwithstanding that, the second question you might raise is that when you account for debts according to their form, then obviously to the extent that you're in that bridge period where you're going for refinancing, things bounce back and forth across the current non-current line. [TC 2/2, p. 20]
Committee/Staff/Observer
Is that a problem for users or do they understand the difference between the two sides of the balance sheet? [TC 2/2, p. 20]
Participant C-17
I understand what you're saying and I don't have a problem with it as long as it's identified. The clearest example I can think of were contractors undertaking projects. They would always show their taxes under the theory that it might be due the next day. They didn't know exactly when the project was going to be completed. If that was disclosed in a footnote, then at least I knew to go back to the company and to sit down and say, okay, you've got this huge liability on your account on the liability side, that distorts everything. It may not be paid this year you could explore it. [TC 2/2, p. 21]
Participant C-4
I think there is a tendency for abuse on the asset side by management. I think what happens is consistently, items are showing up in current assets that are obviously long-term assets if they're assets at all. So I don't know how much work is by accountants to verify the management's intent. [Also included in 17(a)] [TC 2/2, p. 21]
Participant C-5
I would go back to [participant C-14] comments about the hedging activities associated with the current liability structure and the way those things are hedged or even the term liability structure with swaps, caps, and collars, and so forth. Tying to, rather than separate, disclosures about aggregate and totals of these liabilities and off-balance-sheet items will allow you to better understand the variability of the interest charges. [Also included in 19] [TC 2/2, p. 21]
Participant C-14
The way I understood what you just said is perhaps you take each of those potential contracts and tie them to the specific instrument that they relate to? [Also included in 19] [TC 2/2, p. 21]
Participant C-5
Bundled as opposed to unbundled, that's right. I do realize that certain companies don't ever connect the two instruments together. They hedge in aggregate. And, therefore, you'd never be able to tie it back as an accountant. But in situations where there is a feel that this is a direct link contract, it is beneficial. [Also included in 19] [TC 2/2, p. 21]
[Context] Responses to the postmeeting questionnaire to the February 2, 1993 Creditor Discussion Group meeting.
QUESTION 5-Balance sheet display
a. In general, are you satisfied with the display of information in the balance sheet?
6 _ Yes 8 _ No
b. If NO in 5a, please indicate your relative preference for the following:
enter
H, M, or L
as in question 4b
____H-3,M-2,L-2 Display separately the assets and liabilities that result from nonrecurring or unusual transactions or events.
____H-3,M-3,L-1 Display separately the assets and liabilities that result from nonoperating activities.
____H-5,M-3,L-1 Provide more detail of items in other assets and other deferred charges and credits, using a materiality threshold that is lower than that currently used in practice.
____H-6,M-3,L-1Disclose separately past-due receivables or an aging of receivables.
____H-8,M-2,L-1 Disclose separately slow-moving inventory or an aging of inventory.
____H-1 Something else. Please describe.
Participant C-17: Disclosure of amounts due to or from officers, employers or related (by control) firms (also disclosed by name) which are not necessarily consolidated.
Participant C-3: Display complete maturity and interest rate of profiles of assets and liabilities.
Participant C-11: The question is awkward - especially items 1 and 2.
[PMQC 2/2, p. 11]
[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 display. Committee/Staff/ObserverWould it be more beneficial to the user community to have information that may make you able to better assess the need for surprise adjustments, say in receivables or inventories? [Also included in 9 and 17(a)] [TC 3/11, p. 14] Participant C-17
Yes. I went back and looked at a spreadsheet that I used to use in 1972, when I started. And it has all kind of little captions that I used to be able to fill out, like aging of receivables. I could go through the receivables and I saw what was actually written off. I can't always do that today. In my mind it's a question of more disclosure and consistency. It's like when you get a fraud, for instance, the apparel manufacturer, [name deleted]; you get those kinds of situations, and they begin to pop up in groups and it shakes people's confidence. You wonder what actually happened. And how did they reach the size that they did? And how did it go on for the amount of time that it did? Some of these frauds are absurd in terms of their lack of sophistication. And yet it wasn't caught. And that's the thing that's most disturbing. You begin to wonder, was the auditor truly independent? Was he caught up in a battle between his peers in terms of staying on the account? I don't know, I'm just saying that it is disturbing. [Also included in 9 and 17(a)] [TC 3/11, p. 14]
Committee/Staff/Observer I'd like to better understand where the focus is in terms of the nature of a company's business and the size of a company. When we talk in terms of aging of receivables, quality of inventory, impairment of assets, what would you expect to see from a [name deleted]-type size corporation versus a smaller company? [Also included in 17(b)]
[TC 3/11, p. 14]Participant C-5 I think in the middle market, where you are typically financing the current assets and working capital of the company, the focus is on inventory and receivables. Take a [name deleted], though, and I don't want to know what the carrying value of its plants and facilities is. I have to have a sense of levels of utilization of those plants and facilities. An auditor should realize that a user of the financial information would have certain critical concerns about this company and should be able to provide detail on these that would allow us to make our own assessment. I really want to know your assumptions so that I can say: "I discount those assumptions," or " ;I accept your assumptions," or "I'm more optimistic." That's where I might make the lending decision and someone else wouldn't . Otherwise we're all making the exact same decision because we've used one opinion on the numbers. But, in the large corporates it's more looking at the expense structure; the fixed variable, the employee component, the discontinuing operations, segment reporting, and the ability to understand business exits that might occur, and which ones would be most probable for the company. [Also included in 17(b) and 17(c)]
[TC 3/11, p. 14-15]Committee/Staff/Observer And it would be safe for me to leave today with an understanding that maybe your needs with respect to middle market smaller organizations might be different than they would be in a Fortune 500? For the former focus is on perhaps the quality of the underlying assets and perhaps with the latter it's the quality of the underlying control systems and environments, and those kinds of things; is that a fair thing for me to walk away with? [Also included in 1(b) and 17(b)]
[TC 3/11, p. 15]Participant C-1 I don't know if I agree with that at all. Some of the companies that we lent to , that are high-yield companies, are in the Fortune 500. And I think what we're concerned about is the quality of the inventory and the quality of the receivables. If we're lending to a company that the inventory is good for all time to come, fine, but I can't tell you the number of times we've lent money to a company and all of a sudden 20% of their inventory, while it's still good and could be sold, might take ten years to sell it, because no one wants it. And it's been sitting there forever and it's not a current asset, it's really a long term asset. Or, with [name deleted], how many parts do they have that go for a 1980 model that are still sitting in inventory, that really are not going to be liquidated, or not going to be used for the next year; it really is a long-term asset? That's where I become more concerned. You know we're all concerned about environmental problems, and pension problems, and legal liabilities, but the concept that inventory is always a current asset, as we're all trained and taught in business school and undergraduate, just isn't true anymore. [Also included in 1(b) and 17(b)]
[TC 3/11, p. 15]Participant C-15But companies do separate inventories into current and long term assets. I would argue that if [name deleted] is still holding parts for 1980 cars, it should be considered a long-term asset. It should be written off. [TC 3/11, p. 16] Participant C-1
I can honestly tell you, I don't know of any company I've ever seen like that, at least in my area. [TC 3/11, p. 16]
__________
Participant C-11
I don't think you can define beforehand middle-size companies versus large in terms of what the critical data is and that an audit might have to have. Also, I am all in favor of disclosure and we've certainly talked in the past in these rooms about aging of receivables and things like that. But I don't think that should excuse the auditor from having to think about those subjects if they happen to be put into some disclosure format. I think the auditor is responsible and has to consider the reasonableness aspects of those numbers and in terms of, if they are putting out a clean opinion on these companies, which we are relying on, whether they should have caused things to be reassessed or written down. I think that's an auditor responsibility that has kind of been glossed over and perhaps forgotten. But I think it's there if you're going to put out a clean opinion. [Also included in 17(a) and 17(b)] [TC 3/11, p. 17]
[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, comments were made on display.
Participant C-1
I'd rather have assets that you anticipate in some way liquidated over a short period of time, one year, to be extremely conservative. And I don't mean being hidden but I think that there are assets which are not truly short term assets that are put in that section. [Also included in 2(b)] [TC 3/11, p. 41-42]
__________
Participant C-1Just in terms of the inventory, I would just take out of current assets anything that the banks wouldn't lend against. Because then it's not current. [Also included in 2(b)] [TC 3/11, p. 43]Participant C-17
But that's not always the case. If I'm sitting as a secured lender to the inventory, I'm looking at it in terms of what's it going to bring to me if it liquidates. So a lot of times, a lender's going to advance against his perception of liquidation value, not the normal operating cycle. [Also included in 2(b)] [TC 3/11, p. 43]
[Context] Meeting of the Creditor Discussion Group on March 11, 1993. Part of the meeting was devoted to the topic of priority of improvements needed in external reporting. During the discussion, comment were made on display.
Participant C-14
9, 11 and 13. And no particular order. Starting with number 9, display of financial information. We at one time talked about more focus in the balance sheet on liquidity going from maybe differentiating current liabilities rather than just something that matures under one year but get into how much of it is truly interest rate sensitive and how much is reflex roll over or refinancing risk. So I'd want to stress that. And also stress the things we talked about in the cash flow statement. We talked about going to a direct cash flow statement and I'm still in favor of that. 11, core earnings. I think everybody's said enough about that covers my views. 13 (financial instruments); it is very important to find a new way to assess the company's cash flow sensitivity to all those items related to financial off-balance-sheet transactions that are difficult for us to understand as they're presented today. [Also included in 5(c), 15, and 19] [TC 3/11, p. 69-70]
[Context] Responses to the postmeeting questionnaire of the December 9, 1992 and January 13, 1993 Investor Discussion Group meetings.
QUESTION 11--Balance sheet display
a. In general, are you satisfied with the display of information in the balance sheet?
Yes 2 No 5
b. If you checked "no" in 11a, please indicate your relative preference for the following items by marking H, M or L in each space (if you checked "yes" in 11a, please jump to question 12).
:
rank
H, M, or L
as in question 10b
High Moderate Low or no
potential potential potential
Display separately the assets and liabilities 3 1 1
that result from nonrecurring or unusual
transactions or events.
Display separately the assets and liabilities 2 3
that result from nonoperating activities.
Provide more detail of items in other assets 4 1
and other deferred charges and credits, using a
materiality threshold that is lower than that
currently used in practice.
Display separately past-due receivables or an 6
aging of receivables.
Participant I-9: This is crucial.
Display separately slow-moving inventory or an 5 1
aging of inventory.
Something else. Please describe. 1
Participant I-9: The same kind of information
in a D&B report for a slow paying company.
Participant I-12: Any and all financial
operations should show an average balance sheet
with average rates paid and earned.
[PMQI 12/9 and 1/13, p. 19-20]
__________
Analysts were able to identify many areas in which they believed expend disclosures would be useful, but most of those had little or no relation to fair value information. The disclosures they were most interested in were: [Also included in 3(c), 3(e), 10(c), 5(a), 13, and 17(f)] [KPMG BANK STUDY,
p. 38]
Disclosure of problem loans and other impaired assets, including internal loan classification, original principal amount, interest rate, geographic location, industry, nature of problem, and other pertinent loan-specific information [Also included in 13] [KPMG BANK STUDY, p. 38]
Expanded disclosures of the allowance for loan losses [Also included in 10(c)] [KPMG BANK STUDY, p. 39]
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), 2(c), 4, 5(a), 5(c), 5(d), and 13] [KPMG BANK STUDY, p. 39]
Preferred historical cost financial statements supplemented with fair value disclosures [Also included in 4, 5(a), and 5(c)] [KPMG BANK STUDY,
p. 39]
[Context] The papers are a summary of a committee and staff members' discussions with selected sell-side analysts from Goldman Sachs.
[One analyst] would like more data on off balance sheet items and admits that she eliminates goodwill from the balance sheet. She does admit, however, that other intangibles may have some value. [Also included in 1(b), 7(a), and 7(b)] [GOLDMAN, p. 2]