A modified view on an earlier recommendation in the Pozen Committee's (more formally, the SEC Advisory Committee on Improvements to Financial Reporting or CIFiR, chaired by Robert Pozen) Feb. 14 progress report outlining a professional judgment framework for accounting decisions will be presented at CIFiR's meeting today in Chicago.
Recommendation That SEC Articulate Policy For Evaluating Judgment
Specifically, the May 2nd report of the audit process and compliance subcommitee (aka “Subcommittee III”), after considering comments received and panel feedback on the suggested professional judgment framework in its Feb 14 report, states:
“Subcommittee III believes that some changes are necessary … to meet the goals established in that Progress Report without the risks that the subcommittee has been concerned about from the beginning, such as the risk that the developed proposal devolve into a checklist based approach to making judgments and the risk that the proposed framework could be used as a shield to protect unreasonable judgments.”
“The primary change that Subcommittee III believes should be made is to refocus the developed proposal away from a recommendation for a framework,” and instead, “have the SEC formally articulate in a statement of policy how the SEC evaluates judgments, including the factors that it uses as part of its evaluation. Therefore, Subcommittee III believes the developed proposal should be changed to formally propose such as statement of policy to be issued.”
The above modified recommendation is subject to discussion by the full CIFiR committee at its meeting today, and further consideration by the subcommittee after more feedback. We previously reported on some feedback on CIFiR’s initial recommendation for a professional judgment framework here, here and here, and in our Q&A with Michael Young of Willkie Farr & Gallagher.
The subcommittee also recommends modifying their recommendations by removing any reference to ‘safe harbor.”
Additionally, the subcommittee recommends removing the word “professional” from the term “professional judgment,” because: “there could be a misunderstanding that the term professional implies that one must have a professional certification in order to make or evaluate a professional judgment.”
All Four Subcommittees To Present Updated Reports Today
All four subcommittees will present modified recommendations and some new recommendations for discussion by the full CIFiR committee today. The reports of the other three subcommittees are: substantive complexity (Subcommittee I), standards-setting (Subcommittee II), and delivering financial information. (Subcommittee IV).
Testimony on CIFiR Rec’s on Substantive Complexity, Standard-SettingPrior to presentation of the updated subcommittee reports, CIFiR will take testimony from two panels commenting on the recommendations pertaining to substantive complexity and standards-setting. (Panels were convened earlier this year to provide feedback on recommendations of the other two subcommittees.)
Among the eight panelists listed on the agenda for today’s CIFiR meeting are former SEC chief accountant Lynn Turner, Citigroup’s Linda Bergen, Council of Institutional Investors’ Jeff Mahoney, BDO Seidman’s Ben Neuhausen, KPMG’s Mark Bielstein, MFS Investment’s Kevin Conn, American Express’ Brooke Richards, and Financial Reporting Advisors’ John Stewart. The first panel just wrapped up, the second panel begins 11 am Central time (noon EDT).
Check back to our blog for followup reporting on today’s Pozen committee meeting. To receive our blog by email, sign up here.
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