ICI Responds to SEC Accounting Challenges
September 23, 2002
Joseph Carrier, vice president and treasurer of the T. Rowe Price Funds, weighed in on a number of subjects concerning the industry during a recent interview with Mutual Fund Market News Associate Editor Chris Frankie. Carrier, chairman of the Investment Company Institute's Accounting/Treasurers Committee, also spoke about some of the topics to be discussed at the ICI 2002 Tax & Accounting Conference in Palm Desert, Calif., this week.
MFMN: What are the biggest issues you and your colleagues are now facing?
Carrier: With the market decline, our assets and revenues are down, which clearly puts pressure on organizations large and small to maintain service and quality while at the same time reducing costs. So, people are working to find ways of doing things better and smarter while controlling costs.
At the same time, there's lots of activity on the regulatory front - the recent accounting reform legislation being at the top of this list.
Our industry has been sound, but all the issues arising from corporate America are affecting us. We have to figure out how to deal with the financial statement certifications [see story, page 18], internal control reviews and other things that were really designed for operating companies but that are going to impact us, as well.
MFMN: Do you anticipate that the recent activity of fund mergers will result in economies of scale?
Carrier: I don't think there will be a big impact on the industry as a whole. Some funds and complexes will merge or liquidate funds because their assets have declined, and it isn't profitable to run their products. Many of these are sector or specialty funds. But, I don't think it will change core products or have a dramatic impact on the overall landscape.
MFMN: These are difficult times for the investment industry. What role do accounting departments play in helping complexes to be profitable in this environment?
Carrier: We try to be more efficient, to implement the best technology, and have the best controls in place so that we're getting the most out of our operations. We're making sure that we're not only efficient but we're effective in what we're doing, and that we don't have errors the company has to reimburse to funds or shareholders. We also try to make sure that our systems and procedures are scalable so that we can absorb growth without additional costs.
MFMN: Looking back, what would you say has been the biggest change in your field in the last year, and how has it affected individual and the institutional investors?
Carrier: After 9/11 last year, we had to evaluate the impact of the events on our business and our industry. We were shut down for a week.
We had to go back and test our infrastructures and make sure that things were still going to work. In some areas, we implemented our contingency plans. That was a great deal of effort and focus in a short period of time
Also, the markets were down between 18% and 20% this past year, and shareholders wanted more contact and services when revenues were down. We had to "work smarter."
MFMN: Do you expect to see more outsourcing of fund operations to save on costs?
Carrier: I think you'll see some outsourcing by smaller and medium-size companies because they may no longer have the economies of scale to stay profitable. I expect all companies to be evaluating their technology and development costs to determine if outsourcing makes sense as a means of managing these costs.
MFMN: There is a growing concern in the investment industry that not only could expensing options make equity analysis more challenging, but most companies that run pensions are likely to face difficulties, as well, since they have not changed their assumptions for 10% annual returns. There are likely to be deficits. Is this an area that concerns you?
Carrier: No, not really, because I think the analysts are already able to factor in options under a variety of valuation models. The disclosures already available provide most of the data needed.
MFMN: How confident are you that the accounting scandals can be cleared up so that fund managers and analysts can do the proper due diligence - so they can just do their job?
Carrier: I don't think the issues are that rampant, to begin with. I think what you're seeing now are examples being made out of a few bad apples.
Across the economy, I don't think things are that bad. And I've seen it from a couple of angles. Before I was treasurer for T. Rowe Price, I did a fellowship at the SEC and spent years at Coopers & Lybrand. I knew our clients and most of the larger companies in our industry, and for the most part, people are of the highest integrity. Clearly, there are some scandals out there, but the lion's share of companies are pretty careful about reporting their results and keeping their shareholders informed.