A Securities and Exchange Commission advisory committee began meeting to consider ways to make financial reporting more understandable and relevant to investors.
SEC Chairman Christopher Cox believes that financial reporting has become overly complex, and he wants to see an overhaul to make the statements less confusing for investors. The 17-member advisory committee is considering a number of proposals to improve financial information to avoid the number of restatements that have occurred in recent years. In part the aim is to improve the way accounting rules are interpreted and applied.
The advisory committee is chaired by Robert Pozen, a former vice chairman of Fidelity Investments who currently chairs MFS Investment Management. In a discussion paper posted on the SEC's Web site, he said the committee's charter is to tackle issues that have made financial accounting and reporting standards more complex.
One of the problems there is the interaction of the various principles and rules at play. "Complexity may be created not by the adoption of principles versus rules, but rather as a result of competing principles," he wrote. Further complexity could result from conflicts between the needs of preparers and users.
He noted that accounting standards that result from the Financial Accounting Standards Board process leave open many questions of interpretation. One of the subcommittees may wish to consider FASB's process for setting its priorities and responding to inquiries. Another subcommittee would look at the audit process and compliance, while others would focus on improving the delivery of financial information, and international coordination.
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