The breakthroughs came from a series of wide-reaching trends, ranging from a renewed emphasis on internal controls and rethinking of compensation strategies to a greater understanding of the techniques for analyzing financial statements, the pros and cons of changing insurance practices, the effects of converging U.S. with international accounting standards, and the benefits of applying technological advances.

"Investors, creditors, and the general public may not realize how much progress the accounting community has made over the past year," said BDO Seidman National Director of Accounting Ben Neuhausen. "That's because some of the progress has been taking place behind-the-scenes, quietly and without much fanfare. But we think there is reason for optimism, so long as companies stay focused and take the right steps now to apply the lessons learned during 2004 and stay ahead of the emerging developments for 2005."

To achieve maximum benefits in each breakthrough area, companies are advised to take the following steps:

Controls. Be mindful of the need for additional controls when complying with new tax laws and adopting new accounting standards that apply for the first time in financial statements for 2004 and 2005. First-time compliance efforts for 2004 include the American Jobs Creation Act and related guidance from the Financial Accounting Standards Board (FASB). These compliance efforts will likely involve spreadsheets and other informal systems that are neither automated nor a routine part of the company's financial reporting system. The awareness of the need for controls over these records was an important lesson was learned from the internal control reporting requirements of Section 404 of the Sarbanes-Oxley Act.

Compensation Strategies. Take the time to consider the combined effects of recent accounting and tax changes. In addition to the tax law changes, some companies will be affected by FASB Statement 123R, Share-Based Payment, which has a delayed effective date. As a result of one or both of these changes, companies may find their compensation strategies are no longer aligned with their goals. These companies are advised to take advantage of the delayed effective date to reconsider their compensation plans. The added time can also help in (a) documenting and testing controls related to the new accounting standard prior to its effective date, and (b) thoroughly assessing the reporting assumptions required and alternatives allowed under the standard.

Financial Analysis. Make sure the company understands how accounting changes are likely to affect the types of analysis commonly conducted by the users of its financial statements. For example, accounting changes under a recent decision by the FASB's Emerging Issues Task Force affect income from continuing operations, a critical element of financial analysis. Management may want to be prepared for questions and consider making disclosures that go beyond GAAP requirements. The decision takes effect in 2005 and can be early adopted.

Insurance Practices. Make sure accounting personnel understand the pertinent terms of the company's insurance policies and the accounting and disclosure requirements. Recent events have cast a spotlight on insurance practices, causing companies to consider changes that may have important accounting implications. In making these changes, companies are advised of the needs to conduct ongoing evaluations of the company's controls and processes over risks and contingencies. They should also make sure the accuracy and completeness of liabilities is assessed separately from the insurance recoveries related to these liabilities.

International Convergence. Be prepared to respond appropriately to the effects of accounting changes designed to eliminate differences between U.S. and international accounting standards. For 2004 and 2005 financial reporting, companies need to decide whether to early adopt one or both of the first two FASB statements to result solely from international convergence. Longer-term, companies are urged to consider their readiness for more convergence changes that will add to the normal volume of changes and the increasing complexity of U.S. accounting standards. This trend also raises broader questions about how effectively existing U.S. GAAP serves the needs of the users of smaller and private companies' financial statements. Companies are advised to monitor developments in this area and make sure their views are appropriately communicated.

Technological Advances. Consider the use of eXtensible Business Reporting Language (XBRL) for the company's financial statements. XBRL is an information standard that harnesses the power of computers to help users extract consistent and comparable information from electronic financial statements.  The Securities and Exchange Commission (SEC) will allow public companies to file XBRL data with their 2004 financial statements. Potential benefits include faster, most accurate financial analysis and less-costly, higher quality controls. Private companies may also want to weigh the costs and benefits. Although some aspects of the initial methodology are still under review by the SEC and the FASB, companies can benefit from getting involved sooner rather than later.