The preparers of financial statements have long been grumbling about accounting standards, which they say are needlessly complex and painfully burdensome. The users of financial statements, on the other hand, have generally advocated detail and transparency.

Recently, however, a few rumblings of discontent have been heard among investors and analysts.

The first signs of user-side gripes came in recent published reports of equities analysts choosing to ignore the recently required expensing of employee stock option compensation, excluding its effects from reports to stockholders in an effort to suppress the effect on earnings per share.

At the same time, other users of financial information are saying that the ever-increasing amounts of financial data and disclosures are making it harder to find what's relevant or to notice what's changed.

Lynn E. Turner, managing director of research at Glass Lewis & Co. and former chief accountant at the Securities and Exchange Commission, is not among those who complain of too much information. To the contrary, he questions a lack of useful information.

"I think there's concern about the Financial Accounting Standards Board and whether they are giving investors what they want," Turner said, "and I think that's driven by the fact that you've got six of the seven FASB members who are not from the investor community. That raises the fundamental question of just how good a job the board is doing in meeting the needs of its principal customer - the investor. The information that investors get out of FASB pronouncements is not what they are asking for."

Turner said that any trend by analysts to ignore the expensing of stock option compensation is being inspired by companies that are pressuring analysts to not present investors with discouraging information. Many financial analysts, including Bear Stearns and UBS, are reporting to investors the full effects of the implemented standard.

The many exceptions

Credit Suisse Group accounting analyst David Zion cited Statement 133, on derivatives, as exemplifying the current problems with complexity in standards. The idea behind the statement, he said, makes sense to investors, but the many exceptions make related financial statements too complicated.

"Investors get a bit confused," Zion said. "The rules are very complicated. Are investors really seeing the underlying economics of these transactions? Do financial statements have disclosures that make investors aware of the risks involved in these transactions, how much exposure there is, how many risks are being hedged and not hedged?"

Zion said that investors would be happy if they could simply understand the underlying economics behind a company, and could read disclosures that help them understand key assumptions.

"I think that if we get back to a balance sheet focus in standards, that should help us see the underlying economics more clearly," he said. "And maybe we should rethink the income statement a bit."

Perennial accounting commentator Alfred King, vice chairman of the Annapolis, Md.-based valuation company Marshall & Stevens, is most passionate about what he perceives to be an excess of requirements that provide information that few people want and that only serves to hide relevant information.

"I defy anyone to take a 10-K from a major bank and make heads or tails of it!" King said. "I feel passionate about this both as an investor and as an appraiser who has to use published financials in my work. Sometimes the same information is in three separate locations, absolute duplication, and this just lengthens the report and makes it all the more difficult to focus on the important stuff."

King said that leading analysts request rules that provide a lot of information because the subsequent complexity makes professional analysis more necessary. At the same time, companies provide every possible bit of information for fear of the legal ramifications if they leave something out. As a result, King said, "Investors are forced to wade through meaningless rubbish."

Turner, however, does not accept the problem of excessive information. He said that investment firms and analysts have software tools that seek relevant information and identify changes from previous reports. "From our perspective, the more information, the better," he said. "In the area of reserves and pensions, investors are saying give us more, give us more. So we say, 'Bring it on.'"

David Bianco, head of U.S. evaluation and accounting at UBS Investment Research, agreed that investors like disclosures. "The more disclosures a financial statement has, the more investors appreciate how complicated such measurements are, and the more informed they are, the more they can actually question accounting assumptions," he said.

But Bianco also says that he has heard investors saying that, despite the plethora of disclosures, often the ones they really want aren't there. He agreed with the direction that FASB has been going - toward more detailed disclosure - but he would like to see better segmentation between operating costs and one-time items, such as asset impairments.

"There's a lot of frustration out there," Bianco said. "The job is getting harder and harder. There is a lot of useless disclosure out there, and that puts pressure on investors who are looking at more complicated businesses, which requires disclosure, but then they go tearing through papers and can't find what they need or it's not readily accessible or clear or comparable. ... There's never enough disclosure for us. The ideal is to make the right and most meaningful disclosures."

Turner said that the complexity of today's financial statements is attributable to the complexity of today's transactions. "We can never go back to the good old days, because business is not in the Rust Belt anymore," he said. "The accounting that worked for the Rust Belt doesn't work for business today, where the two largest industries are technology and financial services."

Turner explained that the problem is compounded by the standard-setter losing sight of its mission - to give investors access to reliable information - and companies demanding exceptions and exemptions from FASB standards, which serves to make the standards more complex.

The exceptions and exemptions, in turn, make it more difficult for investors to find the information they want. Turner termed the exemptions and exceptions "FASB's fatal error."

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