AFP Blogs

FASB’s Chairmen, Bob Hertz, gave a podcast to discuss the exposure draft on Accounting for Financial Instruments (Formerly issued as FAS 133).  Hertz indicated in the podcast that there are basically three elements addressed in the proposal:

1. Classification and measurement – Whether an instrument will be carried at fair value versus amortized costs and whether the changes in fair value will be recorded in earnings or other comprehensive income (OCI).  the proposed change would require those instruments held to maturity be continue to be recorded at amortized costs but now also report their respective fair values through OCI.
2. Impairment of loans and debt securities – Proposed changes attempt to simplify current methodology by requiring just one model for all of these instruments.  Currently there are various models for accounting for loan impairment (e.g. as currently found in FAS 5 – measuring collective impairment, FAS 114 – measuring individual impairment, SOP 03-3 – measuring impairment of purchased loans to name a few)
3. Hedging of financial instruments and risks using derivative instruments. – Proposes a more simplified model for hedging as the current hedge model has been deemed to be onerous and overly complex.

Hertz indicated that the rewrite will hopefully improve the overall relevance and usefulness of information provided to investors and other users of the information. 

Hertz also indicated that companies with a significant treasury operation would more than likely be impacted by the changes (e.g. some manufacturing companies). 

In addition, companies that have a significant debt portfolio and retail companies that extend loans out to their customers will also be impacted.  

Hertz’s podcast can be viewed at the FASB’s website.

For companies with a centralized treasury structure or a shared service center (SSC), identifying and benchmarking key performance indicators is critical. Corporate treasury professionals confronting this challenge can get valuable advice from their peers at the AFP Treasury Management Forum, April 21-23, in Washington, DC.

Robert Polansky, Director, Treasury Operations for General Mills, will lead a roundtable discussion—“ How Centralized Companies Are Managing Working Capital”—at the forum. Besides learning from their peers, attendees will discuss issues associated with SSCs and ERPs as well as goals to measure performance.

“Treasury and finance professionals should attend the forum in order to gain up-to-date knowledge on working capital management, risk management, globalization and technology,” says Polansky. “It will also offer a great opportunity to network with industry leaders.”

Register for the event here.

Chief financial officers and treasurers will convene in Washington in May to discuss how to operate in today’s financial environment.

The Association for Financial Professional’s Sixth Annual Global Corporate Treasurers Forum will take place at the Four Seasons Hotel, May 16-18, with Bank of America Merrill Lynch as the exclusive sponsor.

“AFP members have played a critical role in maintaining the financial stability of their organizations through the recession,” said Jim Kaitz, president and CEO of AFP. “Now they are moving forward based on new economic realities.”

Speakers include CFOs of McCormick and the Ratner Companies as well as treasurers of Yahoo! Inc. and Global Container Terminals.

“Bank of America Merrill Lynch is proud to sponsor this gathering of financial executives, which comes during a pivotal period for the treasury management industry,” said Dub Newman, Global Treasury Executive at Bank of America Merrill Lynch. “These discussions should prove invaluable to providing treasurers and executives with a deeper understanding of key issues and meaningful solutions to help businesses optimize their working capital.”

For more information on the Global Corporate Treasurers Forum, see www.afponline.org/gctf or download the event brochure.

There’s been a lot of talk on AFP discussion lists about remote deposit capture risk management. With that in mind, the next issue of AFP’s Risk newsletter delves into the topic. In the meantime, Bob Meara, a senior analyst with Celent who authored a report on RDC risk best practices, offers some advice for corporate practitioners:

o Establish a deposit review process if dollar amounts warrant. Most solutions allow separate scan and review/submit user entitlements.
o Use reporting, particularly available reporting that invites review of items that have been corrected.
o Safeguard original items until destruction.
o Use RDC to reduce the number of required DDAs and bank relationships, if applicable.
o Consider use of remote cash capture alongside RDC for businesses that receive meaningful cash to achieve the reduction in bank relationships, reconciliation costs and cash transportation charges.

How often do you leave your office and check in with your treasury and finance staff? How often do you break bread with them?

John J. Tus, vice president and treasurer with Honeywell, says he spends 90 percent of his time meeting with staff. But he insists he isn’t micro-managing.

“I’m finding out what they’re doing, their problems, checking the data as it calls up,” he says. “I think it helps people make decisions because the decisions aren’t being made in a vacuum. Fostering that collaborative culture not only helps with getting to the right answer, it also provides people with a developmental opportunity because they can see how the decision is made.”

If, for example, the data shows s an unexpected cash flow shortage, Tus visits the staff member with oversight of this area to discuss the implications for treasury and the company bottom line. Note the tone of the visit — it’s collaborative, not accusatory. Tus wants to work with the staffer to figure out a solution, not assign blame.

Because Tus is constantly visiting with staff, larger group meetings aren’t necessary, so he says he still has time to return to his office and focus on big-picture items like acquistion funding.

As for lunch, Tus eats with roughly five to 10 treasury staff at Honeywell headquarters every day (Honeywell has 29 treasury staff globally). Lunch topics aren’t necessarily business-related. “It’s a partnership,” Tus explains. “The ideal model is a partnership between the corporation and the person, and I want to maximize that relationship.”

Tus and Craig Jeffery, managing partner with Strategic Treasury, will host “Seven Keys to Building a Resilient Treasury,” October 29, 3:30 ET. Their 60-minute webinar will tackle risk, transparency, visibility, automation, staff, and more. This webinar has been approved for CTP/CCM and CPE credits. For more information on obtaining CE credits by participating in AFP webinars, please view the re-certifictation requirements.

The lesson corporate treasury learned from the current financial crisis: be resilient. And the key to building a resilient treasury, says Craig Jeffery, is preparing for predictable and unpredictable events.

Of the latter, says Jeffery, managing partner with Strategic Treasurer, it’s “patently not correct” that corporate treasury cannot prepare for unpredictable events. “You can’t prepare for detailed action steps,” he says, “but there are certainly things you can do to put yourselves in position to be resilient.” Steps include creating a vision and operating model for your treasury team, maintaining good visibility throughout the organization, and building a strong network of advisors that you can lean on “when things are going crazy.”

Jeffery and John J. Tus, vice president and treasurer, Honeywell International, Inc., will address this topic when they host “Seven Keys to Building a Resilient Treasury,” October 29, 3:30 ET. The 60-minute webinar will tackle risk, transparency, visibility, automation, staff and more. This webinar has been approved for CTP/CCM and CPE credits. For more information on obtaining CE credits by participating in AFP webinars, please view the re-certifictation requirements.

Interested in comparing your performance to your corporate treasury peers in Europe? The second annual AFP Treasury Benchmarking Survey for the first time includes data from European corporate treasurers. This year’s participants included members of AFP as well as subscribers to London-based gtnews, an AFP company and on-line resource for the treasury and finance community, doubling respondents to this year’s survey to more than 800 organizations. AFP, IBM and Deutsche Bank collaborated on the 2009 AFP Treasury Benchmarking Survey.

According to the survey, deploying automated systems can reduce cycle times and staffing requirements, especially for cash management activities.

Additional findings include:
Treasury Costs – The smaller the organization, the more intensive the investment is for treasury operations relative to revenue. Also, the financial services industry tends to incur the highest level of FTEs and costs. This is likely due to the regulatory requirements and strategic emphasis on cash management. In other words, financial services organizations view treasury as a competitive differentiator.

Full-Time Treasury Equivalents - The smaller the organization, the more FTEs are required to conduct treasury operations relative to revenue. The financial services industry tends to employ higher FTE levels.

Treasury Cycle Times - With a few exceptions, size is not a significant predictor of cycle time, suggesting that size does indicate overall complexity when other factors are constant. Financial services tend to have lower average and benchmark cycle times than those of other industry groups.

You can download the executive summary of the 2009 AFP Treasury Benchmarking Survey.

AFP is offering a treasury management workshop, November 5-6, for those who are new to the treasury profession or support customers who use treasury services, or for corporate staff that interact with treasury want to better understand its role. The course is approved for 4.0 to 16.0 CPE credits based on half-day, full-day, or two-day attendance. Click here for more information.

Attendees will:
• Learn the key components of working capital management from a client perspective
• Understand the daily roles, responsibilities, and challenges of individuals who work in the finance function of a company
• Gain fluency in the operating cycle of a business and its relationship to the cash cycle

Register here.

Seminar leader Jacquel Clark, CTP, currently is Vice President and Treasurer for The JRC Group, Inc., a financial services consulting firm. Clark formerly was VP, treasurer and assistant secretary at Hughes Supply, Inc. Clark says, “To be successful, the treasury professional must be able to maintain both a long-term and short-term perspective with respect to cash flows and liquidity management.”

Corporate treasury professionals and financial institution executives alike will learn critical forecasting techniques at AFP’s Cash Flow Forecasting seminar, October 27-28, in Tampa. Attendees can receive up to 11 CTP/CCM credits and up to 11 CPE credits.

Attendees will learn how to:

• Identify cash drivers in their organization
• Forecast individual cash flow line items
• Cope with cash flow uncertainties—both on-going and one-time events
• Predict year-end cash balance, and reconcile it to the short-term cash forecast
• Perform and interpret cash forecast variance analyses.

Take-aways include:

• A reference guide to selected cash flow forecasting techniques
• Selected exercises with additional practice examples
• Excel templates.

Seminar leader George Schilling, CTP, is principal of Schilling & Associates, a treasury management training/consulting and a former assistant treasurer of Chevron USA. Schilling offered this cash flow forecasting tip:

To ensure the effectiveness of your cash forecasting effort, create a cash forecasting policy that answer three questions:

• What are the financial benefits of cash forecasting to our company?
• How do we evaluate what constitutes successful cash forecasting?
• Who is responsible for the cash forecasting activity?

To optimize your variance analysis activity, define what constitutes an accurate forecast by establishing an acceptable error tolerance bandwidth (e.g. plus or minus 10 percent). Once this benchmark is established, only variances that exceed it are investigated thus reducing the administrative cost of the cash forecasting effort.

Register for the seminar here.

Firms that require cash management training for new treasury employees or experienced colleagues outside the treasury department have the perfect resource: The AFP Learning System™: Cash Management Seminar. The online course is set for October 19 and 20, 1-5pm ET each day. Attendees earn up to nine CPE credits. Register here.

Objectives include:
• Recognize key concepts, terminology, goals and tools used in the management of corporate cash
• Examine the cash conversion and operating cycles, and methods used to forecast cash flows
• Identify basic borrowing and investment techniques used to ensure adequate liquidity.

Who should attend:
• Anyone interested in learning the fundamentals of cash management
• Practitioners who have joined the treasury profession within the past two years
• Financial professionals who require a refresher on cash management
• Individuals responsible for cash management in their organization
• Bankers and other providers who make referrals to the product sales team or provide customer service
• Operations and technical staff who support cash management systems and processes
• Accountants and other finance staff who interact with treasury staff.

Feedback from graduates
Here’s what Key National Bank employees said after attending:
• 90 percent said the course enhanced their cash management knowledge and skills
• 100 percent recommended the course to colleagues.