SEC Committee Solicits Public Comments on Discussion Paper
On August 21, the Securities and Exchange Commission announced that the recently formed SEC Advisory Committee on Improvements to Financial Reporting was publicly soliciting comments on a draft discussion paper circulated by the Committee’s chairman, Robert Pozen. The discussion paper provides a working outline, including a discussion of issues, views and potential consideration points, that the Committee may evaluate.
- The paper describes the areas of inquiry mandated by the Committee’s charter and sets forth the Committee’s perception of the objectives of preparers, users and regulators of financial information. The paper also discusses the Committee’s intention to form five subcommittees to aid in formulating its recommendations and exploring its mandated areas of inquiry:
- • Substantive Complexity – this subcommittee will study causes and impacts of complexity on financial and reporting standards, including principles vs. rules-based standards, the inclusion of bright-line tests, exceptions and safe harbors, and the concerns of fair value measurement attributes and related earnings volatility.
- • Standard Setting Process – this subcommittee will study the standard setting process and may consider the hierarchy of organizations that develop U.S. GAAP and their role in that process.
- • Audit Process and Compliance – this subcommittee will study the current process of regulating compliance with the accounting and reporting standards and other factors that drive unnecessary complexity, the structuring of transactions to achieve an accounting result and whether there is a hesitance on the part of professionals to exercise professional judgment in the absence of detailed rules. It may consider financial restatements, the use of preparer and auditor judgment in reducing complexity, the role of the PCAOB and different SEC divisions, the behavior of audit firms and the sustainability of the audit profession.
- • Delivering Financial Information – this subcommittee will study the current system for delivering financial information to investors and accessing that information, and may consider the differing information needs of various investor groups, the tagging of information (such as the use of XBRL), the usefulness of press releases and website disclosure, and legal liabilities that may attach to different categories of information.
• International Coordination – this subcommittee will consider whether the growing use of international accounting standards has an impact on the relevant issues relating to complexity of U.S. accounting standards and the usefulness of the U.S. financial reporting system.