Title: Recommendations of the Special Committee on Financial Reporting
Abstract: To gauge the reaction to the work and recommendations of the American Institute of CPAs special committee on financial reporting, the Journal of Accountancy interviewed 10 business leaders. They represent financial report preparers, internal audit committee members, users (investors, creditors and their advisers), regulators and academicians. Highlights of those interviews appear on the following pages. Each participant was asked the same questions: 1. What do you think of the project in general? 2. What are your reactions to any of the specific recommendations? 3. Do you think the recommendations address the criticisms that have been directed at the financial reporting process: that is, lack of relevance and credibility and the perceived gap between available and reported information? Charles A. Bowsher is comptroller general of the United States, Washington, D.C. On balance, it's a very good project. The financial community has been discussing these issues for some time. The commitee's recommendations certainly were needed. I commend the people who worked on the project. Many of the recommendations--such as those to provide core, noncore and disaggregated information--are excellent. There's a very good chance they will be adopted. After all, they make good sense. However, I have a concern about rooting everything in a current historical cost model. That model served us well from 1934 to about 1974, but now we have to deal with fluctuations in currency and interest rates. More and more, U.S. business has to question whether historical cost can continue to be the anchor of our financial reports. In fact, most large businesses today use the mark-to-market valuation. It's something the Financial Accounting Standards Board has to work on. The issue of internal controls and systems is critical. While the yearend balance sheet is important, the efficacy of businesses' year-round systems and internal controls is every bit as important. While this subject is mentioned in the report, it's not given quite the prominence it deserves. On risk-related derivative products: They are becoming a very big issue. Everybody in business is talking about them and we have to give a lot more thought to them. On expanding segment reporting: This proposal is long overdue. Too often financial reports hide problems because they fail to provide enough information about segments of a business. So, while the overall financial information looks good, there may be certain weaknesses that eventually could affect a company's overall results. On core and noncore reporting: It's important because core earnings tell you how healthy a company's overall operations really are. It's a good management exercise to develop such information. Actually, most well-run businesses already go through the exercise. On preparation costs: I think the arguments of some--that it will cost too much to prepare--are overblown. I think people who are anxious not to change and not to make improvements simply are trying to hide behind this argument. Once you get your systems in place, providing the additional information is not that much more costly. This is basic information, and I think a lot of it already is available internally. The fact is, most well-run companies have such data. Companies that don't should collect the information for their own good. Barbara Hackman Franklin, a former U.S. secretary of commerce, serves on a number of corporate boards and chairs several audit committees. I appreciate the work that went into this, but speaking as a corporate director, an audit committee chair and a former regulator, the report lacks balance. The perspectives of users--that is, investors and creditors--and of auditors are included, but those of corporate management and shareholders are missing. I'm concerned that some might view the report as overly self-serving on the part of the accounting profession. …
Publication Year: 1994
Publication Date: 1994-10-01
Language: en
Type: article
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