FASB Chairman Herz speaks on complexity

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08 Dec 2005

We have posted the (PDF 46k) on complexity in the financial reporting system, presented at the AICPA 2005 National Conference on Current SEC and PCAOB Developments in Washington on 6 December 2005. In our news story of 6 December 2005, we had posted the remarks of eleven US SEC representatives, including Chairman Christopher Cox.

An excerpt from Mr. Herz's comments:

Long touted by some as a strength of our reporting system, the detail and volume of accounting, auditing, and reporting guidance now pose a major challenge to maintaining and enhancing the quality and transparency of financial reporting to investors and the capital markets. Many, including some members of the FASB, believe that the current system has engendered a check-the-box, form-over-substance approach to accounting, auditing, and reporting by preparers, auditors, and regulators, sapping professionalism and increasingly necessitating the involvement of technical experts to ensure compliance. It has also provided fertile ground for those attempting to structure form-over-substance arrangements to obtain desired accounting outcomes. This complexity has also added to the costs and effort involved in financial reporting, which often fall disproportionately on small and private companies and their auditors. It has also created a black box view of financial reporting by many who are not familiar with the intricacies of the underlying accounting, auditing, and reporting requirements. For professional investors and analysts, it results in a lack of transparency and significant analytical complexity in using reported financial information. And it is viewed as a contributory factor to the unacceptably high and increasing number of restatements of financial reports by public companies.

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