By Wyatt Kash. The season's crop of home builder annual reports certainly gives most CEOs cause to celebrate. As our financial roundup of two dozen public home builders in the issue attests, this past year was one of remarkable growth, given a lagging economy: Revenues for the group grew 18 percent while earnings increased 25 percent (see Picking Winners: Public Builder Report Card).

But behind the scenes, getting those reports delivered has been a more grueling process than usual for CFOs, their bosses, and their boards. And it's not likely to get easier anytime soon.

One reason is a thicket of new accounting rules issued by the Financial Accounting Standards Board intended to make financial reports more transparent. In particular for builders is FASB Interpretation No. (FIN) 46 -- a rule, ironically, that accounting experts agree is anything but clear. Aimed broadly at curbing the off-balance sheet abuses that led to Enron's implosion, FIN 46 has suddenly forced builders to re-examine huge numbers of land deals which weren't explicitly considered by the new rule, but which now must be tested for compliance.

The new rules say a company must consolidate the financial figures of certain partnership entities if it will absorb a majority of the entity's expected losses, or receive a majority of its expected returns or both. It also applies to entities in which the equity investment at risk isn't sufficient to permit the entity to pay for its activities without the injection of more financial support.

Determining who bears the burden of risk and reward in countless land holding entities and option contracts -- especially those where the valuations can't be fully determined until completed -- has accounting staffs and auditors reaching for bottles of Tylenol. It's a rule not even an accountant could love. But as we report in "Accounting for Land," it has CFOs under the gun: Public companies have until June 15 and private companies have until Jan. 1, 2004, to comply with most of the rules.

Photo: Katherine Lambert

FIN 46, however, is only part of larger pressures falling on CFOs and CEOs these days to disclose virtually any matter that might materially affect their company's stock. Discerning the consequential from the inconsequential isn't easy, especially now with shareholder lawyers on the prowl. The fact that this year's annual SEC filings are up to a third thicker with finely combed financial detail is testament to the added work CFOs and their staffs confront. Making matters worse, CFOs face tighter reporting deadlines with the SEC beginning this fiscal year. Annual reports will be due just 75 days after the fiscal 2003 close, 15 fewer than before, and in just 60 days the year after. Quarterly reports also will be due sooner. If that wasn't enough stress, the other factor weighing on companies is the broader and more subjective matter of responsible corporate governance. For most companies, good governance begins with a well-balanced, attentive board of directors. What constitutes the perfect board, however, is the subject of wide and ongoing debate.

A growing number of governance rating agencies are trying to provide the answer. A common complaint with these agencies is their tendency to overweigh the financial literacy and independence of board members and underweigh an executive's knowledge, experience, and judgment. The problem, as many see it, is that while good governance is important, it's not easy to measure. Consider the fact that companies such as Dell, Wal-Mart, and Southwest Airlines earn low rankings by the raters despite their world-class reputations.

With that said, Pulte just announced it earned a corporate governance rating that places the company higher than 95 percent of other S&P 500 companies. BIG BUILDER takes a look at "Who's on Board?" among the public builders in this issue and concludes that most have taken a variety of measures to define their positions on proper governance and, like KB Home and others of late, have adjusted the mix of individuals on the boards to do the governing.

If there is an upshot to all the extra work, it's that the public builders are not only turning out impressive results on the outside, but also taking solid steps on the inside to ensure authentic accountability and stewardship for their shareholders. If done in good faith, that will help strengthen the whole industry as well as the companies involved.

Wyatt Kash