SEC.

While there have been positive changes in financial reporting in recent months, Donald T. Nicolaisen, the Securities and Exchange Commission's (SEC) chief accountant, sounded a note of mild frustration in his remarks. Nicolaisen, noting that he had come on as chief accountant in August 2003, said, "I've fallen short of my expectations on what we could have done, but we have made significant progress on several fronts."

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The SEC is encouraged by companies undergoing "a real push to get the numbers right," he said, but the status quo simply isn't acceptable. He argued that industry and specific-company failures are still too common, investors remain skeptical of reporting in general and there remains a prolonged drop in investor confidence. Nicolaisen defended the certification process set up by Sarbanes-Oxley, calling it "a real positive for the capital markets." In fact, he added later that the Act's Section 404 "is the one area that can have a truly lasting impact on financial reporting."

Among the "areas for improvement" he mentioned:

* Communication. It needs to be done in plain English, and the Management Discussion and Analysis (MD & A) section of the annual report should provide a useful forward look at the business and the industry to investors. Companies need to concentrate on a direct method of cash flow measurement, and should avoid aggregating segments in their reports, he added.

* Off-balance-sheet reporting. Nicolaisen noted that the SEC's study of current practices involved here is expected to be issued by the end of the year, and that "we're developing recommendations now."

* XBRL, An SEC "concept release" explores the idea of data tagging, and the SEC has established a voluntary XBRL program that could furnish XBRL files in time for companies to work on their 2004 calendar year tax filings, he said.

Nicolaisen said that reports that as many as 1,000 of the 5,000 or so "accelerated filers" may miss the deadline for Section 404 (it was November 15) "would be discouraging." He noted that auditor resources, which have been stretched thin, may be a factor here, not just companies having failed to do their part in meeting the deadline. Echoing McDonough, he said that public announcements about the discovery of inadequacies or material weaknesses in internal controls may not be cause for investors to flee if companies are open about what is happening and what they are doing about it.

Scott Taub, the SEC's deputy chief accountant, reviewed with the conference attendees a series of "hot topics" in reporting--areas where the commission has found problems or inadequacies. The first one he mentioned, contingencies, doesn't seem to be getting enough attention, Taub said, adding that few loss estimates are provided, and the footnote disclosures, by and large, "are woefully inadequate."

A company expecting the settlement of a major lawsuit, he said, should be willing to provide an estimate "greater than zero" about its potential charge, and "accruals should be taken when a loss can be reasonably estimated."

Taub added that despite the coming advent of the IAS in January, the SEC won't necessarily allow foreign registrants to file reports without reconciling to U.S. generally accepted accounting principles (GAAP). Some 45 companies are currently filing their reports in IAS and reconciling with GAAP, he said, and that number should grow sharply next year. Eventually, Taub said, the requirement of reconciling with U.S. GAAP should disappear, though he said that might not be before 2010.

Carol Stacy, chief accountant of the SEC's Division of Corporation Finance, noted that the office has hired more than 100 new accountants and will soon have more than 220.

She reviewed Rule 83, which covers confidentiality of material contained in official letters between companies and the SEC. Fully 90 percent of requests related to the rule--which governs requests to withhold information when requested under the Freedom of Information Act--are turned down, she said, and the SEC intends to make public the full chain of correspondence in such situtations, not just the final letter.