Preliminary decisions by SEC's financial reporting review panel

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15 Jan 2008

In June 2007, the US Securities and Exchange Commission formed the SEC Advisory Committee on Improvements to Financial Reporting to study the causes of complexity in the US financial reporting system and to recommend ways to make financial reports clearer and more beneficial to investors, reduce costs and unnecessary burdens for preparers, and better utilize advances in technology to enhance all aspects of financial reporting.

See our News Story of 28 June 2007. Last week, the Advisory Committee held its third meeting and reached some tentative decisions on changes that it might propose. The Committee's deliberations were based on a Draft Decision Memo (PDF 878k) that sets out the definition and causes of complexity and proposals for reducing complexity. The Committee tentatively agreed to support the following proposals, among others:
  • GAAP should be based on transactions and activities, rather than industries, and most existing industry-specific guidance should be eliminated.
  • GAAP should provide for a single method of accounting for a given transaction or event and should not normally include accounting policy choices.
  • The FASB should be the source of interpretations of US GAAP, not other parties.
  • The SEC and others should acknowledge that principles-based standards may result in a reasonable amount of diversity in practice, and the SEC's compliance and enforcement activities should not require restatements that may not be material to users/investors, so long as the basic principles in US GAAP are followed. The SEC should promulgate guidance on materiality in this context.
  • Prior period financial statements should only be restated for errors that are material to those prior periods.
  • The SEC and PCAOB should provide more protections from lawsuits or SEC enforcement actions for companies and auditors exercising reasonable professional judgment.
  • The SEC should require XBRL filings by the 500 largest domestic listed companies, followed by evaluation and a decision whether to extend this to all listed companies.
  • The SEC should provide guidance on corporate websites that provide financial information to investors.
The Advisory Committee will meet again in March and plans to publish its final recommendations in third quarter 2008. Click to go to the Advisory Committee's Web Page on the SEC website.


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