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SEC Examining Financial Statement Measurements

Strategic Finance Magazine...December 2011

     Are financial statement requirements up for review? It is not clear based on the a public roundtable discussion the Securities and Exchange Commission (SEC) held on November 8. The roundtable focused on financial statement measurements and associated disclosures that incorporate judgments about future events. It was the first in a series of an indeterminate number of roundtables which will be part of the Financial Reporting Series, instituted by SEC staff to assist in the proactive identification of risks related to, and areas of potential improvements in, the reliability and usefulness of financial information provided to investors. It is not clear what precipitated this initiative. It was not the Dodd-Frank law. It contains nothing on financial reporting "reforms," either in the financial services sector or anywhere else. In fact the SEC has done very little on financial reporting issues generally during Mary Schapiro's tenure as chairman. Jeff Mahoney, General Counsel, Council of Institutional Investors, says he suspects the SEC's action is related to the issue of fair value for financial instruments.

    There is a considerable amount of enthusiasm among statement preparers for the SEC effort here. "Determining the right level of disclosure requirements for measurement uncertainty will not be an easy task, but we are encouraged that the FASB has a Disclosure Framework project on their agenda and the prospect that guidance may be provided for disclosures on estimates that require assumptions, judgments, or other internal inputs that could reasonably have been materially different," says Bob Laux,  Senior Director, Financial Accounting and Reporting, Microsoft Corp.

      While the SEC hasn't said much about "why" it is undertaking these roundtables, it has been pretty specific about the kinds of topics it wants input on. These include: 1) where the extent of
uncertainty in an accounting measurement is less (or even more) useful to investors and why a more certain measurement would be preferable; 2) where uncertain measurements are useful to
investors, how should the uncertainties be incorporated into the measure; 3) What information do investors utilize to understand uncertainty?