Yet another county heard from on the subject of complexity is the Global Accounting Alliance (GAA), consisting of the AICPA and 10 of its international brethren, which issued a report in Dec. 08 entitled, Getting to the Heart of the Issue: Can Financial Reporting Be Made Simpler and More Useful? GAA held a roundtable last week, reported on in this article in CFO.com, and in articles in webcpa.com here and here (the second article of which says GAA plans to issue another report this fall.)
The report of the [FASB-IASB FCAG] is set to contain some 20 recommendations organized around four broad principles, FCAG Co-Chairman Hans Hoogervorst told a July 6 gathering of the International Accounting Standards Committee Foundation trustees and monitoring board representatives. Publication of the group's report is imminent, following a closed meeting July 10 in New York that focused on drafting. ...Read our summaries of FCAG meetings here, here and here, and see a related column I wrote which appears in the current issue of FEI's Financial Executive Magazine, entitled, Standard-Setting and Sovereignty. (Note: you will be prompted to create a free login account to read articles online if you are not an FEI member.)
Hoogervorst, who co-chairs the group alongside former SEC Commissioner Harvey Goldschmid, identified the four principles around which FCAG has based its recommendations as:
• support for both boards' recent work on financial instruments accounting,
• acknowledgement of the limitations of financial reporting, and
• the two interrelated principles of due process and accountability.
James C. Collins and Jerry I. Porras in their book Built to Last talk about how leaders get caught in what they call 'The Tyranny of the Or,' the belief that you cannot live with two seemingly contradictory ideas at the same time, that you can have change or stability, you can be conservative or bold, you can have low costs or high quality, but you can never have both. They found that successful, visionary companies all operate in what they call “The Genius of the And,” the ferocious insistence that they can and must have both at once.
....This concept of duality has been around for many years [in the] concept of Yin and Yang... which describes 'two primal opposing but complementary forces found in all things in the universe.'"
- Yin and Yang are interdependent. One cannot exist without the other. For example, day cannot exist without night. Light cannot exist without darkness.
- Yin and Yang can be further subdivided into Yin and Yang.
- Yin and Yang consume and support each other. Yin and Yang are usually held in balance-as one increases, the other decreases. However, imbalances can occur.
- Yin and Yang can transform into one another. At a particular stage, Yin can transform into Yang and vice versa.
The need for balance
I believe the SEC will face a challenge ahead, in reconciling recommendations from its Investor Advisory Committee (IAC) with considerations of the issuer community. The IAC, formed with a finite life in accordance with the Federal Advisory Committee Act (FACA), would become a permanent committee of the SEC if draft legislation entitled the Investor Protection Act of 2009 - part of broader financial regulatory reform - is passed by Congress and signed into law.
This point about the need for balance was also commented on by Broc Romanek in his July 13 post in TheCorporateCounsel.net blog:
How many federal agencies have permanent advisory committees? This could set a bad precedent - and even though investors may have been under-represented by those that regularly approach the SEC in the past, the SEC has heard plenty from investors over the past few years. The creation of a permanent committee may swing the pendulum the other way so that the investor perspective dominates the SEC's view of the world.
In the long run, the much more likely result is that regularly meeting with an advisory committee would simply be a waste of time. I like the idea of roundtables on specific issues where all sides are represented - as well as the normal comment process on rule proposals - for the SEC to obtain all the outside input it needs. I'm not a big believer in conducting more meetings as a way to find solutions to problems.
One of the key phrases Romanek uses above with which I most strongly concur is the benefit of roundtables "where all sides are represented." To me, that is the beauty of committees like the Pozen Committee, more formally, the SEC Advisory Committee on Improvements to Financial to Financial Reporting (CIFiR), which included investor representatives as well as issuer representatives and others, and had observers from FASB, IASB, the PCAOB and Treasury.
Another positive example of giving potentially disparate interests a seat at the same table (instead of convening two distinct firewalled tables) would be the roundtables conducted jointly by the SEC and PCAOB in 2005 and 2006 on implementation issues arising under the then-new SEC and PCAOB rules issued under Sarbanes-Oxley Section 404; those roundtables included participants such as issuers, auditors, investors and others. Additional examples of advisory groups with diverse representation would include the U.S. Treasury Department's Advisory Committee on the Auditing Professional (ACAP) - which published its final report in Oct. 2008, and the PCAOB's Standing Advisory Group (SAG). (Note: PCAOB announced yesterday that they will meet on Tues. July 28 to consider a final standard on Engagement Quality Review, and a Concept Release on Requiring the Engagement Partner to Sign the Audit Report.)Summing up, I'm not saying the SEC, FASB, PCAOB and IASB should go out and redesign their offices using Feng shui or anything, but it will be interesting to see how they may apply the principles of Yin-yang in seeking harmony (or at least balance) among the diverse interests within and among their constituencies as they move forward in rule-making and standard-setting.
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