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SEC sponsors discussions on future of financial reporting.

Securities and Exchange Commisson commissioner Steven M. H. Wallman is planning three symposia to discuss the financial reporting and reporting of intangible assets, the recommendations of the American Institute of CPAs special committee on financial reporting and how technological advancements will change financial reporting. The first symposium, on intangible (soft) assets, is scheduled for April 11 and 12, 1996, and will be held at the SEC in Washington, D.C. The symposia are public, and all who wish to contribute to the debate are invited to attend.

"We have invited as panelists representatives of those who see a need for reviewing the current system of financial and corporate disclosure and reporting, including the accounting profession, standard setters, academia and government agencies and officials, to discuss generally improvements needed to maintain the utility of financial reporting into the next century," said Wallman. "We need to investigate the current accounting model with a critical eye, because it is not keeping pace with the changes in the business world."

Reflecting changes in the way America does business

One of the commissioner's main concerns is that the timeliness of financial reporting keep pace with the rapid acceleration of events that influence business. Wallman told the Journal that annual and even quarterly reports did not communicate material developments quickly enough to meet market needs. "We need to conceptualize and develop a system that fills the need for more timely financial information without just suggesting more filings with the SEC."

The commissioner also pointed out that the definition of a company also is in flux. For example, Wallman said entities now engage in a variety of joint ventures and other strategic combinations that blur traditional firm lines. We probably will see more of this in the future with closely linked "clusters" of entities or "virtual companies" with hundreds of thousands of people networked together to perform certain tasks. "The key assets of a virtual company could simply be human resources or human capital," said Wallman. "The outer edges of this kind of entity could change daily."

Wallman commended the profession for its efforts in addressing these issues. "The accounting profession has, in essence, the intellectual muscle necessary to address these issues," said Wallman. "The work of both the AICPA special committee on financial reporting and the special committee on assurance services strongly influences thoughts on providing additional relevance to financial statements."

Reporting soft assets

Wallman said the first symposium on soft assets directly addresses the need to update the current reporting model, which "is still in the industrial age, recognizing assets such as plant, equipment, property, bricks and mortar. It is a model that worked well in the last half century and works well with traditional industries, but it does not easily recognize the soft assets that are increasingly used to produce wealth in today's economy." He said soft assets can include intellectual property, research and development, software, human capital, patents, copyrights and brand names.

"Focusing more attention on the issue of soft assets seemed like a natural place to tie together a number of ways our current reporting model is not keeping pace," said Wallman, noting that the April symposium would include discussion of such issues as how to value the earning power of soft assets while ensuring the information is both reliable and relevant. "We know that the current value of zero for many soft assets implicitly reported on a balance sheet is wrong, and it remains to be discussed how we can achieve the right value," said Wallman. The symposia will review these issues from the perspective both of domestic reporting and international reporting, with a number of international participants.

Dates have not been set for the other two symposia. For more information on the symposia or to express an interest in attending please contact Andre Owens, counselor to Commissioner Wallman, at (202) 942-0800 or Terry Warfield, academic fellow, in the office of the chief accountant at (202) 942-4400.

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Publication:Journal of Accountancy
Date:Apr 1, 1996
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