SEC advisory committee proposals on financial reporting

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10 Jul 2008

The US SEC's Advisory Committee on Improvements to Financial Reporting will meet on 11 July 2008 to consider a draft of its final report.

The five main themes of the committee's draft recommendations, and examples of specific proposals, are presented below. Click to Download the Draft Report (PDF 5mb). You can get more information on the Advisory Committee's Page on the SEC's website.

SEC Advisory Committee on Improvements to Financial Reporting Examples of draft proposals

A. Increasing the usefulness of information in SEC reports

  • Put executive summaries at the beginning of annual and quarterly financial reports.
  • The private sector should develop key performance indicators (KPIs), on an activity and industry basis, that would capture important aspects of a company's activities that may not be fully reflected in its financial statements or may be non-financial measures.
B. Enhancing the accounting standards-setting process
  • Recognise the pre-eminence of the perspective of investors as the primary users of financial reports by increasing investor representation on the FASB and FAF.
  • FASB should increase the field work for proposed standards, formalise post-adoption reviews, and make periodic assessments of existing standards.
  • Create a Financial Reporting Forum (FRF) to coordinate the efforts of FASB with the SEC, the Public Company Accounting Oversight Board, investors, auditors, and other parties. The FRF would meet regularly to evaluate the current pressures on the financial reporting system, set priorities for projects, and discuss how to carry out these projects.
C. Improving the substantive design of new accounting standards
  • Redesign accounting standards to clearly articulate their objectives and principles. Use simple language. Avoid detailed rules, all-or-nothing bright-line tests (which sometimes make similar circumstances look different and which are susceptible to manipulation), and numerous exemptions.
  • The SEC should recommend that the FASB be judicious in issuing new standards and interpretations that expand the use of fair value until FASB completes a measurement framework and the infrastructure for measuring fair values is strengthened.
  • Because the current mixed attribute system of historic cost and fair value is likely to continue, the draft report supports the FASB's efforts to divide the income statement into two or more sections that would, among other things, help investors distinguish cash receipts from unrealised changes in fair value.
  • Move away from industry-specific guidance in authoritative literature.
  • Formally promulgated alternative accounting policies should not exist.
D. Delineating authoritative interpretive guidance
  • All authoritative accounting standards and interpretive implementation guidance of general significance should come from a single standard-setter – the FASB.
  • The SEC should codifying its existing accounting guidance in a format consistent with that used by FASB.
  • "If the convergence of US GAAP and IFRSs does not occur within a few years, FASB and the SEC should consider a systematic rethinking of US GAAP."
E. Clarifying guidance on financial restatements and accounting judgments
  • The SEC and PCAOB should adopt policy statements to provide more transparency into how these regulators evaluate the reasonableness of judgements.


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