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AFP Address Regarding Recent Advocacy Initiatives
September 22, 2006
AFP COO Kevin Keller recently addressed a gathering of finance and treasury professionals at an ABN Amro client conference. Keller briefed the audience on the recent advocacy initiatives at AFP.
Here are his remarks:
"Thank you! It's great to be here.
AFP and ABN Amro LaSalle Bank have a long and close relationship. Over the years, they've supported our work on behalf of the finance and treasury profession. And AFP is pleased to lend its support to this important client conference.
The industry update and educational opportunities available to you here are an important part of your personal and professional development.
And I'm excited to have this opportunity to share what's going on with AFP.
Before I get into that, I want to say a special hello to a good friend. As many of you know, G.M. Stetter is ABN Amro's head of cash management and trade for the Americas.
But back in 2001, G.M. was also AFP's chairman of the board. And just as ABN is benefitting from his leadership, so too has the treasury profession in general and AFP specifically.
What you may not know is that G.M. has many interests outside his work responsibilities.
And while we miss G.M.'s leadership, we also miss his encyclopedic memory of rock and roll trivia.
G.M., thanks for being a good sport and a great leader for AFP.
As you can imagine, a lot has happened in our industry since G.M. served as chairman of our board.
In fact, every year brings new challenges and big changes to your world.
It's AFP's mission to not only stay responsive to those changes, But also keep ahead of the curve.
Just as you are here today to grow and stay in touch with what ABN Amro is doing, AFP does the same for its members - providing an opportunity for them to grow and stay in touch with what's happening in the profession. The only difference is that we do it every day.
Some of you may think of AFP as simply a professional membership organization that holds a big annual conference every fall.
Others may think of us in terms of all the resources that we provide to our members. In fact, we like to think of ourselves as "your daily resource."
From our "Essentials of Treasury Management," which is the basis for CTP certification, to the online discussion lists, where members have unparalleled access to the help they need to do their jobs at the highest level, every day our members turn to AFP for the professional resources they need. And we're there for them.
But the AFP I want to tell you about today is the one that plays a crucial role in the arena of public policy. When it comes to representing the best interests of our members and our profession, we take a leading advocacy role.
AFP speaks up. And right now, we are speaking up on three hot-button issues.
Each one has AFP in the news. And is extremely important to our members, as well as to most everyone in this room.
In the next few minutes, I'd like to tell you about:
- The controversy over "the big four's" decision to redefine "cash"
- The reform of the credit ratings market
- And pension plan reform.
Let me start with the big four and the question of "what is cash?"
The fuse was lit in February 2005. That's when the accounting firm of PriceWaterhouseCoopers announced it was changing the accounting treatment for auction rate securities.
Until then, auction rate securities had been accounted for as a cash equivalent by both corporations and external auditors.
The move by PWC was made -- mid audit -- without any due process, or regulatory oversight.
Soon, the three other big accounting firms followed suit. And it didn't stop there. Not long after that, the big four announced that variable rate demand notes no longer qualified as a cash equivalent either.
As you probably know, the fallout for treasury and finance professionals was intense. The big four had changed the rules of the game-in the middle of the game.
All of a sudden, Treasury departments were caught in a crossfire of confusion and uncertainty. Many of you were forced to abandon accepted practices and modify your financial statements, following a new, narrow standard for the definition of cash. In some cases, companies even had to restate their prior financial statements.
Needless to say, AFP got into the act. As I said, our priority is to advocate for what's in the best interests of our members.
And on this issue, we're making the collective voice of our membership heard, loud and clear.
AFP has called on FASB - the Financial Accounting Standards Board - to clarify its definition of "what is cash?"
From our perspective, "the big four" have no business changing or modifying the financial instruments that are the accepted tools of our profession. And if you follow their logic, money markets could be the next target, since the underlying security frequently has a maturity date of greater than 30 days.
As AFP said in a letter to FASB earlier this year: "AFP believes that it is important to have one authoritative source of standards for financial accounting and reporting, And FASB is that source."
FASB is currently looking into our request.
If we allow this move by the big four without a fight, it sets a dangerous precedent. Today, they change the definition of cash. What might they change tomorrow? The ripple effect on finance and treasury could be huge.
That's why AFP is taking such a vocal and determined stand right now.
Another issue of great importance to our members is credit ratings.
For three years, AFP has called for the reform of the credit ratings market, and we are close to seeing it become a reality. Here's the background.
As you know, Standard & Poor's and Moody's are the major credit rating agencies in the U.S. They control eighty-five percent of the market.
They are designated as "nationally recognized statistical ratings organizations." Bond buyers rely on ratings from these agencies to assess the creditworthiness of potential borrowers. And ratings have a direct impact on equity prices and many other assessments that impact your corporations.
Since many of AFP's 15,000 members use this information, we decided to survey how they rate the ratings agencies.
The survey results were sobering.
The majority of our members told us they don't believe the credit ratings are timely or accurate.
In the survey, our members called on the SEC to:
- Increase the oversight of ratings agencies
- Foster greater competition in the market by allowing more companies to provide credit ratings.
Since then, the issue has been a top priority for AFP. We have been a frequent visitor to Capitol Hill, advocating for reform of the credit ratings market.
We started working with Congress, developing legislation to address the issue, and the concerns of our members. And now, the hard work is paying off.
In July, the house passed the Credit Rating Agency Duopoly Relief Act. The Senate is about to pass it.
The act does two things:
- It establishes a new registration process that encourages competition by providing a clear path for credit rating agencies that wish to become recognized
- And it strengthens the SEC's oversight to ensure that registered credit rating agencies are held accountable, for providing information that is credible and reliable.
AFP is pleased with this outcome. Not just for our members, but for everyone who depends on the confidence and integrity of credit ratings.
Another important issue that has been on our radar is pension plan funding.
For nearly two years, there has been a vigorous national debate over proposed legislation to reform retirement security in general. And defined benefit plans specifically.
AFP's voice in the debate is CIEBA - the Committee on the Investment of Employee Benefit Assets. CIEBA represents more than 115 of the largest corporate pension funds in the country. CIEBA joined AFP in the year 2000.
The collaboration between CIEBA and AFP was a natural. Many AFP members now have responsibilities that relate to their company's retirement plans.
Our affiliation with CIEBA enabled us to bring the treasury point-of-view into the debate.
From the beginning, our position was that any legislative proposal to reform the pension funding system must be carefully analyzed for both intended and unintended consequences.
Despite considerable partisan crossfire, on August 17th, President Bush signed the Pension Protection Act of 2006. And while we're not particularly happy about the outcome for traditional plans, CIEBA and AFP were somewhat successful in shaping some important provisions.
One example: the House and Senate bills treated investment gains and losses asymetrically for funding purposes. CIEBA argued successfully that both gains and losses should be treated the same way.
The new law also includes very positive provisions for defined contribution plans, 401(k)s.
For example: The higher contribution and benefits limits adopted in 2001 are now permanent.
In addition, it clarifies the rules on government automatic enrollment in 401(k) plans and facilitating investment advice for 401(k) participants.
And now that the pension legislation has become law, AFP and CIEBA will monitor and participate in the development of the regulations that will implement the law.
Further, we'll make sure that policy makers and corporate plan sponsors understand how the new law works and how to get the most out of their plan investment management.
Setting a single standard to define "cash." Calling for the reform of the credit rating process. Advocating for pension legislation. Three hot button issues. Three opportunities for AFP to advocate for, and make a difference on behalf of our members and the profession.
There are more challenges, of course. Our work in the legislative and public policy arena is never-ending. In fact, it's just the tip of the iceberg.
Our goal is not simply to respond to issues that impact our membership, but to be proactive and identify them as soon as possible.
Several times a year, we survey our members. We ask them to tell us what issues are at the top of their minds.
Their feedback enables us to identify and track current and future topics of concern.
Based on this research, AFP develops education and training products specifically designed to address each concern.
Many of the seminars and training sessions that we offer at our annual conference fall into this category.
Let me give you an example.
This past summer, we surveyed 2,000 AFP members who hold senior-level positions in their companies. Here are the top five issues of concern that we gleaned from their responses:
5. Identifying, measuring and managing the financial risks to which their companies are exposed.
4. Optimizing their organization's capital structure: The balance between cash, debt, and equity.
3. Measuring and communicating finance and treasury's contribution to company performance.
2. Improving the cash forecasting process without adding systems or head count.
1. Understanding the best practices for safeguarding against fraud and supporting suspicious activity.
In response to that feedback, our conference in Las Vegas next month features nearly 30 different educational sessions, workshops, and roundtables specifically designed to address those top five concerns.
And there are more than a hundred other conference sessions. The conference is billed as the most comprehensive event in treasury and finance, and it is!
Like ABN Amro, AFP places a premium on education. We strive to make our educational programs original, essential, and unbiased.
And we work hard to make sure that all of it is responsive to the real world needs of our members. For what they need right now and for what they're going to need in the future.
I encourage you to visit AFP's Web site. I think it's fair to say that the breadth and depth of our offerings ensure that we have something for every treasury and finance professional, at every stage in their career.
As I mentioned at the start of my comments, AFP and ABN Amro have a long and close relationship, and I am delighted to keep it going today.
We're both committed to the future of our profession, and to your success as a treasury and finance professional, today and every day."
Copyright © 2006 Association for Financial Professionals. All Rights Reserved.
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