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Chapter 9. Looking Ahead: The Core Roadm... > Coordinating Governance with Core Ea...

Coordinating Governance with Core Earnings-Based Reporting

For any corporate executive, questions about Sarbanes-Oxley compliance dominate current thinking. These questions will eventually be replaced with a series of new questions. Among these may be, Can we disclose financial information accurately without making core earnings adjustments? Since the new law demands that CEO and CFO disclose material information, is it possible to certify a financial report on an as-reported basis? Increasingly, the answer will be in the negative as executives begin coming to grips with the inadequacies of GAAP.

As important as core earnings are in improving the accuracy of reported information, it is equally troubling that pension liabilities are often left off the balance sheet, making “core net worth” substantially lower than reported net worth. The whole question of core net worth is yet another dimension to the question of how well GAAP serves our needs. If we exclude substantial pension liabilities, how is capitalization affected? Should pension liability be treated as long-term debt? If so, do we need to reevaluate the operational debt ratio on a new basis? And if we are to include pension liabilities, should we not also report core value of long-term assets? In the case of depreciated real estate, real market value (core value) may be substantially higher than the current book value.


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