SEC Advisory Committee To Improve Financial Reporting For Investors

by Glen Shapiro, LawAndTax-News.com, New York

02 July 2007

US Securities and Exchange Commission Chairman Christopher Cox last week announced the establishment of an advisory committee that will examine the US financial reporting system, with the aim of reducing unnecessary complexity and making information more useful and understandable for investors.

The SEC Advisory Committee on Improvements to Financial Reporting will study the causes of complexity and recommend to the Commission how best to make financial reports clearer and more beneficial to investors, reduce costs and unnecessary burdens for preparers, and better utilize advances in technology to enhance all aspects of financial reporting.

"Our current system of financial reporting has become unnecessarily complex for investors, companies, and the markets generally," Chairman Cox explained. "The time is ripe to review how that system can be made less complex and more useful to investors."

Robert C. Pozen, chairman of MFS Investment Management in Boston and former vice chairman of Fidelity Investments, will chair the SEC's advisory committee. Chairman Cox said he expects between 13 and 17 additional members to be named to the advisory committee within the next few weeks.

"In addressing the complexity of the current system, our advisory committee will focus not only on offering better guidance to preparers of financial reports, but also on providing more user-friendly disclosures to meet the different needs of various types of investors," Mr Pozen stated.

Chairman Cox said that the Commission will direct the advisory committee to conduct its work with a view toward removing practical and structural impediments that reduce transparency or unnecessarily increase the cost of preparing and analyzing financial reports to the detriment of the investor.

The advisory committee will focus on the following areas before making recommendations to the Commission:

• The current approach to setting financial accounting and reporting standards;
• The current process of regulating compliance by registrants and financial professionals with accounting and reporting standards;
• The current systems for delivering financial information to investors and accessing that information;
• Other environmental factors that drive unnecessary complexity and reduce transparency to investors;
• Whether there are current accounting and reporting standards that impose costs that outweigh the resulting benefits, and
• Whether this cost-benefit analysis is likely to be impacted by the growing use of international accounting standards.

As part of its consideration of these areas, the advisory committee will focus on how technology can help address accounting complexity by making financial information more useful to a greater number of investors.

The advisory committee will begin its work after additional members are named and the SEC staff files the committee's charter with Congress.

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