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SEC Chairman urges 'principles-based accounting standards'

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22 Feb 2002

In a speech before the Federal Bar Council, SEC Chairman Harvey L.

Pitt called for a "move toward a principles-based set of accounting standards": [Click for Full Text]

Present-day accounting standards are cumbersome and offer far too detailed prescriptive requirements for companies and their accountants to follow. That approach, by necessity, encourages accountants to 'check the boxes' — that is, to read accounting principles narrowly, to ascertain whether there is technical compliance with applicable accounting principles.

But the first principle should always be the one Judge Henry Friendly articulated four decades ago... If literal compliance with GAAP creates a fraudulent or materially misleading impression in the minds of shareholders, the accountants could, and would, be held criminally liable.

That is why we are advocating fundamental and far-reaching changes in the Financial Accounting Standards Board. We seek to move toward a principles-based set of accounting standards.

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