• Reform of the U.S. Rules-Based Accounting System: This is where the most change is needed, Mr. Paulson said. Today, US GAAP accounts for the vast majority of the world's economic activity, and is generally viewed as the best accounting system in the world. The 'European system', which is less rule oriented and more judgment based, is clearly different and successful in its own right. The goal should be convergence of accounting systems, incorporating the best from both models. To do this, we need a new approach to standard setting.
• A Long Hard Look: Mr. Paulson encouraged the SEC to "take a long, hard look at how accounting standards are set in the US," including governance of FASB, selection of FASB members, the FASB standards-setting process "with all of its time delays", and its resources.
• Fair Value Accounting: Mr. Paulson urged the FASB to review historical cost accounting which, he said, is "hopelessly antiquated for companies primarily engaged in financial services or for companies heavily involved with financial instruments, such as Enron. Instead of requiring such companies to record the current, fair market value of all financial assets and liabilities, the historic cost model allows them to record certain financial assets and liabilities at their historic cost. And while the value of financial instruments can vary greatly with the fluctuations of the market, institutions that use historic cost methodology -- primarily banks -- are not required to account for those movements in their financial statements. The result is that investors, regulators and the media have no way of quantifying the real economic impact" of these instruments.

We will be recommending to the Commission in the near future that it propose rules that will require [individual corporate] leaders to certify that everything they know that they believe is important to investors has been disclosed in a company's periodic reports. This is a simple but powerful approach. We believe that it will increase involvement of corporate leaders in disclosure, make them focus on what they themselves consider important and improve the overall quality of a company's reports.