22 S T R AT E G IC F I N A N C E I S e p t e m b e r 2 0 1 0

The AccountingImplications of SECMoney Market ReformBy Stephen Barlas

At hearings held by the Senate Banking Committee in

June, Brad Fox, vice president and treasurer of Safeway,

Inc., and immediate past chairman of the National Asso-

ciation of Corporate Treasurers, warned about the cor-

porate accounting implications of a possible Securities &

Exchange Commission (SEC) regulation on money mar-

ket funds. Fox said one of the proposals being pushed by

SEC Chairman Mary Schapiro—a floating net asset val-

ue (NAV)—“would result in a significant accounting

burden for companies across America investing in this

product.” Fox was testifying on behalf of the U.S. Cham-

ber of Commerce.

Schapiro told House and Senate committees in June

that she will ask the other commissioners to approve a

proposed rule that would require money market funds

to either adopt a floating NAV or keep a stable $1 NAV

but increase their capital buffers to support their stable

values, possibly combined with limited restrictions or

fees on redemptions. The need for money market

reform, according to Schapiro, is to avoid a situation

such as the run on the Reserve Primary Fund, a $62 bil-

lion money market fund that held $785 million in

Lehman Brothers debt on the day of Lehman’s bankrupt-

cy in 2008 and immediately began experiencing a run.

Shareholders requested redemptions of approximately

$40 billion in just two days. In the final two weeks of

September 2008, money market funds reduced their

holdings of commercial paper by $200.3 billion, or 29%.

Market uncertainty during 2008 destabilized the money

market mutual fund industry, prompting the Treasury

Department to temporarily guarantee funds’ holdings.

As a result, the SEC adopted significant new money

market rules in 2010 designed to increase the funds’

resilience to economic shocks and to reduce the risks of

runs. The key reforms required funds to shorten maturi-

ties of portfolio holdings, increase cash holdings,

improve credit quality, and report their portfolio hold-

ings on a monthly basis. But Schapiro says more reform

is needed because money market funds, though resilient,

still remain susceptible today to investor runs with

potential systemic impacts.

Schapiro isn’t alone in her concern. Sen. Richard Shel-

by (R.-Ala.), ranking Republican on the Senate Banking

Committee and something of a skeptic toward addition-

al SEC regulation, said, “The loudest voices advocating

additional money market fund reforms, however, have

come from inside the Federal Reserve. Fed Chairman

Bernanke, Fed Governor Tarullo, and multiple regional

Fed Presidents have given speeches in which they raise

the issue of so-called ‘structural vulnerabilities’ to high-

light the need for additional reform.”

With regard to the accounting implications of a floating

NAV, Fox explained, “Most treasury workstations built for

managing corporate cash do not have accounting systems

to track NAVs on each transfer into and out of money

market funds. Putting the systems issue aside, many trea-

surers would refrain from returning to money market

funds to avoid the significant time and effort required to

record the gains and losses on each investment and the

potential impact on quarterly earnings results.”

According to May 2012 data from the Investment

Company Institute, corporate treasurers with cash bal-

ances and other institutional investors invested up to

$900 billion, or approximately 65% of the assets, in

prime money market funds because they provide liquidi-

ty, flexibility, transparency, investment diversity, and

built-in credit analysis. There are no comparable invest-

ment alternatives available in the marketplace today,

according to Fox. Money market funds also represent a

GOVERNMENT

By Stephen Barlas, John M. Brausch, Donna Sirico, Kathy Williams

22 S T R AT E G IC F I N A N C E I Au g u s t 2 0 1 2

cont inued on page 24

Au g u s t 2 0 1 2 I S T R AT E G IC F I N A N C E 23

A Performance Management Resource

BOOKS

G ary Cokins is indispensable to the

field of management accounting.

His research and work have been at the

forefront of the field’s resurgence over

the past two decades. In Performance

Management: Integrating Strategy

Execution, Methodologies, Risk, and

Analytics, a collection of previously pub-

lished articles and blog postings, Cokins

takes the reader through every facet of

performance management.

Intended as a resource guide, Perfor-

mance Management isn’t meant to be

read cover to cover. Its 35 essays touch

almost every topic of the subject, includ-

ing strategy maps, predictive analytics,

retaining employees, value creation, the

role of the CFO and CEO in performance

management, encouraging the right

behavior, key performance indicators,

and organizational health. The book is

worth the price for the first chapter

alone, “Rules for Ensuring Poor Perfor-

mance,” a satirical look at what is

wrong with much of corporate America

today. In the chapter, a hypothetical CEO

talks about ways to ensure mediocrity.

The CEO ensures that employees are

ignorant of the organization’s strategy,

sets employees against one another,

holds no one accountable for perfor-

mance, and sets no targets. He also

makes sure there’s an ERP system that

produces reams of data but little action-

able information, with spreadsheets

everywhere so that different teams work

from different numbers. But don’t buy

the book for just one chapter. You’ll want

to savor every topic whether you need a

refresher or primer on any of the topics

covered in the other 34 essays as well.

Divided into 10 parts, the book exam-

ines performance management from

almost every possible angle. The main

theme that emerges throughout the

essays is that a performance manage-

ment strategy needs to be executed. This

idea is nothing startling, but it is one

that is ignored far too often. Perfor-

mance Management is peppered with

information on executing performance

management, the accountability and

rewards for doing so, why companies fail

to do so, and the consequences of failing

to execute performance management.

The concepts Cokins discusses in the

book need to be executed to be of

value—an important theme to manage-

ment accountants and financial profes-

sionals, who certainly have an obligation

to themselves and their organizations to

start the performance management ball

rolling or correct its course if necessary.

Cokins, a long-time IMA® member,

will be familiar to readers of Strategic

Finance and to attendees of IMA confer-

ences, and he brings the same practicali-

ty and insight to his writing that he

brings to his presentations. He has the

uncanny ability to boil difficult subjects

to their essence, making them easy to

understand and—even better—easy to

implement.

I first encountered Cokins’s work in

the early 1990s. His 1992 tour de force,

An ABC Manager’s Primer, helped set my

career on a different trajectory, and

Performance Management has the

potential to do the same for many others

as readers work out these concepts for

themselves.

Go buy this book. You’ll be glad you

did. Keep it close at hand so that you

can use it as it was meant to be: a refer-

ence guide on the journey of perfor-

mance management.—John M. Brausch,

former IMA Chair and president of

J Brausch and Co., jbrausch@imanet.org

The main theme that emergesthroughout the essays is

that a performance management strategy needs

to be executed.

24 S T R AT E G IC F I N A N C E I Au g u s t 2 0 1 2

significant source of affordable, short-term financing for

many Main Street companies. Approximately 40% of all

corporate commercial paper in the marketplace is pur-

chased by these funds, according to Fox.

Congress UnsheathesDouble-Edged Sword onCorporate PensionsThe corporate pension changes Congress included in the

student loan bill passed at the end of June are a double-

edged sword. On one side, more corporate pension funds

are about to look more fully funded. On the other, com-

panies will pay an additional $9 billion a year in fees.

Companies have been arguing that the low level of

interest rates on corporate bonds—which are used to

calculate pension liabilities—make too many pension

funds look unsteady. Congress changed the interest rate

calculation, and the Society of Actuaries estimated that

the number of large corporate plans more than 80%

funded will rise to 91% from the current 62%.

But the bill calls for increasing flat-rate premiums to

$42 per participant next year from $35, and then further

hikes in later years. “As much as we appreciate the inclu-

sion of pension funding stabilization, we strongly

disagree with the decision to impose an additional

$9 billion in pension plan premium hikes,” says James A.

Klein, president of the American Benefits Council. “The

increase in insurance premiums paid to the Pension

Benefit Guaranty Corporation (PBGC) effectively acts as

a tax increase on companies that sponsor these plans for

their employees.”

IMA Wants Your InputMore than two years ago, IMA® created a seven-member

Managerial Costing Conceptual Framework (MCCF)

Task Force to draft a conceptual framework for manage-

rial costing that would define practical principles and

concepts to improve cost modeling and decision support

inside organizations. The Task Force recently released an

exposure draft, “Conceptual Framework for Managerial

Costing,” and it would like IMA members and other

management accounting professionals to download the

document, read it carefully as it pertains to their organi-

zations and the profession, and then submit any com-

ments by August 31, 2012. You can find the exposure

draft and instructions for submitting comments at

http://bit.ly/Odf5sG.

This Conceptual Framework seeks to define the prin-

ciples, concepts, and constraints for costing efforts that

support management decision making in an organiza-

tion. The Task Force says the aim of the Conceptual

Framework is to assist management accountants and

financial professionals to design and compare costing

approaches in order to create cost information that

reflects the operations and economics of an organization

and helps it achieve its strategic objectives. It doesn’t

address the use of costing for financial accounting or

regulatory financial reporting purposes.

All the comments the Task Force receives will help it

define the final principles and concepts. For additional

background information, you can read “Why We Need a

Conceptual Framework for Managerial Costing” in the

October 2011 issue of Strategic Finance. Members of the

Task Force are Larry R. White (chair), B. Douglas Clin-

ton, Anton van der Merwe, Gary Cokins, Chuck

Thomas, Ken Templin, and Jim Huntzinger. IMA expects

to publish a final MCCF later this year.

NEWS

24 S T R AT E G IC F I N A N C E I Au g u s t 2 0 1 2

cont inued f rom page 22

Sharing Your IMA LifeMost IMA® members share a strong spirit of camaraderie.

What have your experiences as a member of IMA been

like? Do you have a story about them you’d like to share?

If so, please consider writing an IMA Life column that

will be published in Strategic Finance. You can be a stu-

dent member, a young professional, in the midst of your

career, or retired. If you would like to write an IMA Life

article, please e-mail Kathy Williams at

kwilliams@imanet.org.

Au g u s t 2 0 1 2 I S T R AT E G IC F I N A N C E 25

Learning andKnowledgeSharing Radiateat IMA’sConferenceThe theme of IMA’s 93rd Annual

Conference & Exposition was

“Achieve Brilliance,” and this year’s

sessions strove to a shine a light on

the path to continued professional

success. Accountants and financial

professionals from across the United

States and around the world attend-

ed the event, held June 23-27, 2012,

at the Mandalay Bay Resort & Casi-

no in Las Vegas, Nev. The Confer-

ence featured dozens of educational

sessions, workshops, and networking

opportunities facilitated by promi-

nent speakers in business and acade-

mia. Through them, participants

gained insight into the latest indus-

try standards and trends

and learned about new

strategies and techniques

to use on the job.

For example, Stephen

M.R. Covey, practice

leader at Franklin Covey’s

Global Speed of Trust

Practice, described why

and how trust is the number-one

leadership competency and how it

can become the greatest strength to

fuel strategic goals. Jonathan Pond,

public television host, discussed a

variety of important financial mat-

ters, including investing, planning

for a financially comfortable retire-

ment, and thriving throughout your

retirement years. And Rick Harrison,

owner of the Gold & Silver Pawn

Shop and star of The History Chan-

nel’s “Pawn Stars” television show,

talked about his recipe for success

and described how a successful busi-

ness is built from the combination of

three major components: honesty,

integrity, and passion.

In other sessions, speakers focused

on the international convergence of

accounting standards and strategies

for competing successfully in a glob-

al economic environment marked by

volatility, uncertainty, and ambigui-

ty. Leslie F. Seidman, chairman of

the Financial Accounting Standards

Board (FASB), talked about the

FASB’s current priorities, providing

updates on its major projects and

discussing the impact they will have

on organizations. Teri List-Stoll,

treasurer and senior VP at Procter &

Gamble Co., spoke about the impor-

tance of establishing a learning cul-

ture in your organization. She

emphasized that technical mastery,

an important foundation for learn-

ing, must be complemented by a

leadership profile, emotional intelli-

gence, and strong communication

skills in order to be successful.

Highlights and Special EventsA key moment of the Conference

was the announcement of a global

strategic partnership between the

ACCA (Association of Chartered

Certified Accountants) and IMA.

The signing took place at the Annual

Meeting of Members and was for-

malized by Mark Gold, ACCA’s

senior council member and former

global president, and IMA Chair

Brian McGuire.

As it does every year, the Confer-

IMA NEWSSPECIAL SECTION

Steven R.M.Covey stresses

the importanceof trust.

Mark Gold, ACCA seniorcouncil member and formerglobal president, and BrianMcGuire, IMA Chair, formal-ize the parnership betweenACCA and IMA.

26 S T R AT E G IC F I N A N C E I Au g u s t 2 0 1 2

ence provided numerous opportuni-

ties to celebrate and reward the

many distinguished IMA contribu-

tors at the Annual Dinner. Awards

were presented to chapters and indi-

viduals for their accomplishments

during the year, including the CMA®

Performance awards, the Lybrand

Awards for the best member-

authored articles published in

Strategic Finance and Management

Accounting Quarterly, and the win-

ners from the Chapter Competition.

This year’s winners were Dubai-UAE

in the Stevenson Division and

Switzerland in the Warner Division,

with South Central Indiana winning

the Chair’s Award.

The Bulloch Award, which goes to

organizations that have demonstrat-

ed notable support and promotion

of the CMA certification, was also

presented that night. This year it was

given to SAFEA, China’s State

Administration of Foreign Experts

Affairs. Zheng Jie, chief representa-

tive in SAFEA’s New York office, was

on hand to accept the award. The

dinner concluded with the inaugura-

tion of John Macaulay as IMA Chair

for 2012-2013.

Earlier in the week, the ICMA

commemorated the 40th anniversary

of the CMA with a grand Las Vegas-

style party. The raucous celebration

featured performances from celebri-

ty impersonators of several Las Vegas

stalwarts, including Tina Turner,

Frank Sinatra, Dean Martin, and the

rest of the Rat Pack. The event was

kicked off with a brief welcome by

IMA Board of Regents Chair Rick

Thompson and Dennis Whitney,

ICMA senior VP, and special atten-

dees included some of the very first

CMA exam takers. SF

(Left) SAFEA’s Zheng Jie accepts the Bulloch Award given to SAFEA for its support and promotion of the CMA in China.

(Right) John Macaulay, IMA Chair for 2012–2013, takes the helm from Brian McGuire, 2011–2012 IMA Chair.

Save the DateSave the date for IMA’s 94th

Annual Conference & Exposition

to be held June 22-26, 2013, at

the Hilton New Orleans Riverside

in New Orleans, La.

We look forward to having you

join us next June in New Orleans,

where IMA will continue its tradi-

tion of bringing you the knowl-

edge, skills, and strategies that

help enhance your professional

success, create influence, and add

value to your organization.

Call for SessionsIMA is currently seeking presen-

ters and program ideas for the

2013 Conference, and we invite

you to share your ideas and

expertise by submitting through

our Call for Sessions. Multiple

submissions are welcome. For

more information, please visit

www.imaconference.org.

The deadline for submissions is

August 31, 2012.

Future IMA Conferences13th Annual Student Leadership

Conference

November 1-3, 2012, San Antonio,

Texas • Crowne Plaza San Antonio

RiverwalkThe CMA turns 40.

Au g u s t 2 0 1 2 I S T R AT E G IC F I N A N C E 27

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