SEC Names Members to Advisory Committee on Financial Reporting

Former SEC Commissioner Joseph Grundfest and former Federal Reserve Board Governor Susan Bies have been named to the SEC Advisory Committee on Improvements to Financial Reporting. Other committee members named will each represent key constituencies in the capital markets. The advisory committee, established last month, has been instructed to make recommendations to the Commission that will increase transparency and reduce the costs of preparing and analyzing financial reports. SEC Chairman Christopher Cox has also named PCAOB Chair Mark Olson and FASB Chair Robert Herz as official observers to the advisory committee, which is chaired by Robert Pozen of MFS Investment Management.

As part of its mandate, the committee will focus on current systems for delivering and accessing financial information. The advisory group will also examine the impact of 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 panel must also examine the current approach to setting financial accounting and reporting standards, including principles-based vs. rules-based standards. Moreover, as part of this aspect, the committee must determine if there is a hesitation on the part of professionals to exercise judgment in the absence of detailed rules. Finally, the group will decide to what extent financial reporting standards should include bright lines and safe harbors.

At the committee's first meeting today, member, and UGA professor, Dennis Beresford noted that complexity is a much more long-term problem than what the committee can resolve in a year. Beresford also believes that MD&A, while burdened with excessive legalisms and boilerplate, still provides a lot of meaningful information.