Congress is set to reprise this week its earlier passage of the Promoting Transparency in Financial Reporting Act. (The House passed the bill in prior sessions, but the bill was never acted on in the Senate). Currently numbered H.R. 2664, the bill would, among other things:
[R]equire annual oral testimony before the [House] Financial Services Committee of the Chairperson or a designee of the Chairperson of the Securities and Exchange Commission, the Financial Accounting Standards Board, and the Public Company Accounting Oversight Board, relating to their efforts to promote transparency in financial reporting.
Specifically, as described in H.R. 2664, the PTFRA would require that, beginning in 2009, and for five years thereafter, annual testimony of the SEC, FASB and PCAOB Chairmen (or their designees) would be provided to the House Financial Services Committee on "their efforts to reduce the complexity in financial reporting to provide more accurate and clear financial information to investors, including
- reassessing complex and outdated accounting standards;
- improving the understandability, consistency, and overall usability of the existing accounting and auditing literature;
- developing principles-based accounting standards;
- encouraging the use and acceptance of interactive data; and
- promoting disclosures in ‘‘plain English’’.
Virtually identifical versions of the bill were passed by the House during previous sessions of Congress under the Bush administration but were never voted on in the Senate.
The bill, originally introduced by Rep. Geoff Davis (R-KY) concurrent with a Congressional hearing on Fostering Accurancy and Transparency in Financial Reporting (March 29, 2006 hearing of the Subcommittee on Capital Markets, House Financial Services Committee). (See FEI Summary of the hearing; then-FEI President & CEO Colleen Cunningham testified at the hearing, as well as FASB Chairman Robert Herz, PCAOB's then-Acting Chairman Bill Gradison, and SEC's then-Acting Chief Accountant Scott Taub, in addition to others).
A brief history of the bill appearing in Rep. Davis' bio notes that
The bill would increase Congressional oversight of financial reporting by requiring the government agencies responsible for securities and accounting standards to testify ... on steps they are taking to improve financial reporting regulations. The bill passed the House in both the 109th and 110th Congresses, but has yet to be considered by the Senate.
The bill has been reintroduced in the 111th Congress by Rep. Christopher Lee (R-NY) and is co-sponsored by Rep. Davis, Rep. David Scott [D-GA], Rep. Michael Castle (R-DE) and Rep. Adam Putnam (R-FL).
What Might The Testimony Say?
Among developments which the FASB, PCAOB and SEC Chairmen could potentially include in their testimony, if the bill were to become law, are:
- Reducing complexity: FASB's final standards issued earlier this year, such as FAS 166 and 167 amending FAS 140 and FIN 46R on securitization and consolidation (e.g. consolidation of what used to be called QSPEs) reassessing complex and outdated accounting standards; and FASB and IASB's efforts to amend financial instruments standards - with one of the goals being to 'simplify' the accounting (although, as noted in some earlier posts in this blog, some constituents believe some of the proposed 'simplifications' such as a move to fair valuing a broder populations of financial instruments, particularly those that are not actively traded, would not necessarily be a 'simplification.')
- Increasing understandability, consistency, usability: At least on the consistency front, FASB's Codification was launched on July 1 as the single source of U.S. GAAP. Since the Codification is still so new, various parties are debating its 'usability,' and some have questioned the two-tiered subscription structure in which basic access and some rudimentary search functionality is free, but users are charged to have access to the Professional View of the Codification, which provides more sophisticated search functions. Some who have commented on this two tiered subscription structure include Professor Bob Jensen, and Broc Romanek of TheCorporateCounsel.net blog. Separately, FASB launched earlier this summer a new project on the Disclosure Framework, which, according to this FASB press release, has the goal of considering certain SEC (e.g. MD&A) and FASB disclosure requirements holistically.
- Principles-based: FASB and the IASB have been aiming to issue principles-based accounting standards; (some say both board's have largely done so historically, although many characterize FASB standards as historically being relatively more rules-based than IASB standards, potentially, in part, due to the differing litigation environment in the U.S.)
- Interactive reporting: SEC's final rule approved last year mandates that public companies provide exhibits to their filings to include financial reports and certain related information tagged with interactive data, specifically eXtensible Business Reporting Language or XBRL. (The interactive data rule comes into effect this year with the largest public companies, and is being phased in over a three year period by company size). See also the report issued by the SEC last year on its 21st Century Disclosure Initiative, although some aspects of that report may be more or less on hold as the new administration tackles various pressing matters.
- Plain English: FASB's Disclosure Framework Project mentioned above, and some of the recommendations in the final report issued last year by SEC's Advisory Committee on Improvements to Financial Reporting. See also SEC's new Investor Advisory Committee, formed earier this year, their ultimate recommendations could potentiall relate to all 5 of these areas. The PCAOB also recently announced it will form an Investor Advisory Committee as well.
Print this post