By James Hamilton, J.D., LL.M.
The House is expected to pass this week bi-partisan legislation requiring the Chairs of the PCAOB, the SEC, and the FASB to testify annually before Congress on accounting and auditing issues, beginning this year. The Promoting Transparency in Financial Reporting Act was passed in the 110th Congress as part of the Securities Act of 2008 (HR 6513), but was never taken up by the Senate. The current version, HR 2664, is stand-alone legislation introduced by Rep. Christopher Lee.
House Majority Leader Steny Hoyer has indicated that the House will take up the legislation under a suspension of the rules. The original bill was introduced by Rep. Geoff Davis, who is co-sponsoring HR 2664.
In the legislation, Congress specifically finds that the complexity of accounting and auditing standards in the United States has added to the costs and effort involved in financial reporting. In this regard, the bill mandates the SEC, FASB and the PCAOB to annually provide oral testimony to Congress on their efforts to reduce the complexity of financial reporting in order to provide more accurate and clear financial information to investors.The testimony must also discuss the reassessment of complex and outdated accounting standards. The agency chairs must additionally discuss how to improve the understandability, consistency, and overall usability of the existing accounting and auditing literature. Congress also wants information on how the development of principles-based accounting standards is progressing. In addition, there must be a discussion of how to encourage the use and acceptance of interactive data, as well as efforts to promote disclosures in plain English.
Legislative history indicates that the mandated annual hearings represent an assertion of congressional oversight of accounting and auditing standard setting; and will help Congress reassess complex accounting standards and improve the understandability of financial statements, as well as encourage the acceptance of interactive data. At the same time, the legislation will encourage US regulators and standard-setters to fulfill their own roles and initiatives to achieve greater transparency, promote greater uniformity, and reduce complexity in financial reporting, not only domestically but also globally.