On February 11, the Securities and Exchange Commission’s Advisory Committee on Improvements to Financial Reporting issued a progress report of the Committee’s developed proposals, conceptual approaches and currently identified matters for future consideration. The Committee published the interim progress report to encourage public feedback. The Committee was established to examine the U.S. financial reporting system and make recommendations to increase the usefulness of information to investors while reducing complexity. In its progress report, the Committee recommended the following proposals:
- Generally Accepted Accounting Principles (GAAP) should be based on business activities rather than industries;
- GAAP should be based on a presumption that formally promulgated alternative accounting policies should not exist;
- The addition of investors to standards-setting bodies;
- The SEC should assist the Financial Accounting Foundation with its governance of the Financial Accounting Standards Board (FASB);
- The SEC should encourage the FASB to further improve its standard-setting process and timelines;
- The number of parties that either formally or informally interpret GAAP and the volume of interpretive implementation guidance should continue to be reduced;
- The SEC or its staff should issue guidance reinforcing the following concepts (i) those who evaluate the materiality of an error should make the decision based upon the perspective of a reasonable investor, (ii) materiality should be judged based on how an error affects the total mix of information available to a reasonable investor and (iii) the evaluation of errors should be on a “sliding scale”;
- The SEC or its staff should issue further guidance on how to correct errors;
- The SEC or its staff should develop and issue guidance on applying materiality to errors identified in prior interim periods and how to correct such errors;
- The SEC or its staff should adopt a judgment framework for accounting judgments and encourage the Public Company Accounting Oversight Board to consider similar action with respect to auditing judgments;
- The SEC should, in the future, mandate the filing of XBRL-tagged financial statements after the satisfaction of certain preconditions, with such requirements being phased-in over time; and
- The SEC should include a new comprehensive interpretive release regarding the use of corporate websites for disclosures of corporate information.
The progress report was posted for comment on the SEC’s website and the SEC has invited comments for a period of 30 days after publication of the release in the Federal Register.