House lawmakers heard from various regulatory bodies and association leaders on ways financial reports could be made more user-friendly for investors and the general public.
Among those testifying before the House Financial Services Subcommittee on Capital Markets, Insurance and Government-Sponsored Enterprises this week were Financial Accounting Standards Board Chairman Robert Herz, acting Public Company Accounting Oversight Board chairman Bill Gradison and acting Securities and Exchange Commission chief accountant Scott Taub -- a trio whose testimony focused on a broad picture of the work each body was pursuing.
Joining the regulators were Colleen Cunningham, chief executive and president of Financial Executives International; Barry Melancon, president and chief executive of the American Institute of CPAs; and Rebecca McEnally, director of capital markets policy for the Chartered Financial Analyst Center.
Cunningham presented four potential solutions to the "complexity conundrum" from FEI, suggesting that FASB prioritize its framework and codification projects; regulators avoid second-guessing reasonable interpretations of standards; Congress assist in lowering the number of frivolous lawsuits; and preparers, auditors and users of financial statements take a more active role in making sure financial reporting is usable and understandable. She also said that FEI supports the idea of the formation of a special committee to combat complexity in financial reporting.
Melancon focused his testimony on what he sees as the bright future for Extensible Business Reporting Language. XBRL is a technology that tags financial information through disparate applications and carries it through the business reporting chain.
"Today, investors, lenders and other users of the information need to make decisions much faster and more often based on what is currently happening and what may happen in the future, in addition to what has occurred solely in the past ," he said. Melancon later added, "Enhanced financial reporting is no longer just a dream."
He also said that two of the keys to helping XBRL reach its potential are to simplify overly complex reporting and to complete the convergence of international reporting and auditing standards as soon as possible.
McEnally's testimony focused on improving the quality of financial reporting and outlined some of the key principles of a new financial reporting model that she and a global panel developed following three years of research.
"We believe that financial statements should be prepared from the perspective of the common stock owner, the last residual claimant on a company's resources," McEnally said.
Other principles she lobbied for include ensuring that items in financial statements are measured at fair value; that all changes in assets and liabilities are recorded in a single, new financial statement; and that an end is brought to the practice of issuing quarterly earnings guidance from company managers.
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