Highlights Of SEC Chairman Christopher Cox’ Speech at AICPA Conference
December 8, 2008
Below are highlights from the keynote address provided by Chairman, U.S. Securities and Exchange Commission, Christopher Cox, at the American Institute of CPA’s “National Conference on Current SEC and PCAOB Developments,” on Dec. 8, 2008:
o eXtensible Business Reporting Language (XBRL): Cox said: “In the same way that IFRS [International Financial Reporting Standards] might someday soon make financial statements understandable to investors anywhere on earth, the 30 different spoken languages that will someday soon be embedded in XBRL data tags attached to public company financial statements could let any investor read an IFRS or U.S. GAAP financial statement from any country in his or her own native language. That objective will be significantly advanced if, as expected, the commission later this month finalizes our proposed rule to provide investors with all public company financial reports in interactive data format.”
o International Financial Reporting Standards (IFRS): Cox outlined milestones in the SEC’s proposed roadmap, and stated: “The only real question is not whether this is good for investors, but how quickly both the accounting standards and the process by which they are established and developed can be globally recognized as world-class.”
o Fair value: SEC will deliver its congressionally mandated study of the impact of mark to market (fair value) accounting on Jan. 2. Cox noted that although the study is not yet complete, the current direction indicates a number of preliminary findings, two of which relate to the need to improve certain standards (specifying FAS 115 by name). The SEC’s preliminary findings include:
- The accounting standard setters could improve upon the existing security impairment models.
- The current concept of mark-to-market accounting increases the transparency of financial information provided to investors — but …in inactive or illiquid markets, additional guidance would be useful to promote reasonable application of the standards.
Guidance by year-end? Cox said: “I believe it is critical that FASB complete its analysis of the SEC's request for expeditious improvement in the impairment model in FAS 115, made formally last October, in accordance with its established independent standard-setting process.”
He added, “Since our October letter, we have encouraged the FASB to address issues including impairment, the convergence of IFRS and U.S. GAAP on this and related topics, and the treatment of so-called EITF 99-20 securities, including CDOs [credit-default obligations] and other structured instruments. As you will hear from Bob Herz and others later today, the FASB is working diligently on these issues, and is mindful of the importance of providing guidance in time for the preparation of annual reports at the end of this year.
o Importance of independent standard-setting process: Cox also emphasized the distinction between financial reporting, which is “intended to meet the needs of investors,” and the fact that “While financial reporting may serve as a starting point for other users, such as prudential regulators, the information content provided to investors should not be compromised to meet other needs.” He cited a General Accounting Office report from a few years ago supporting the importance of the independent standard-setting process.
He added, “There are those who say that independent standard setting is important, and who will agree that private-sector standard setting is preferable to ensure that the process is not detached from reality — but who nonetheless say that while these things are true in ordinary times, these are not ordinary times. Therefore, they argue for setting aside the normal approach to standard setting, which identifies issues for consideration, gives the public exposure documents, includes outreach efforts, and then solicits comments on the exposure documents, and finally considers all of the resulting comments in finalizing and issuing new accounting standards. All of that, they say, should be set aside and replaced with a quick-fix, whether the standard setters agree or not. This view gives short shrift not only to the principle of independence, but also to the credibility of the standard-setting process and investor confidence in it. The truth is that the value of independent standard setting is greatest when the going gets tough. The more serious the stresses on the market, the more important it is to maintain investor confidence.”
Prepared Dec. 9, 2008 by Edith Orenstein, Director, Technical Policy Analysis, Financial Executives International (FEI). This summary does not reflect FEI opinion unless specifically noted above.