House Passes Financial Transparency Act
July 25, 2006
On July 25, 2006, the U.S. House of Representatives passed H.R. 5024, the Promoting Financial Transparency Act of 2006. The Act would require the U.S. Securities and Exchange Commission (SEC), Public Company Accounting Oversight Board (PCAOB) and Financial Accounting Standards Board (FASB) to give annual testimony updating the House Financial Services Committee on their efforts to:
- reassess complex and outdated accounting standards;
- improve the understandability, consistency, and overall usability of the existing accounting and auditing literature
- develop principles-based accounting standards;
- encourage the use and acceptance of interactive data; and
- promote disclosures in plain English
The bill, introduced by Rep. Geoff Davis on March 28, 2006, was also highlighted at a March 29, 2006 hearing on “Fostering Accuracy and Transparency in Financial Reporting,” sponsored by the Subcommittee on Capital Markets of the House Financial Services Committee, at which FEI President and CEO Colleen Cunningham testified. Others testifying at the hearing included FASB Chairman Robert Herz, SEC Acting Chief Accountant Scott Taub, PCAOB’s then-Acting Chairman Bill Gradison, representatives from the U.S. Chamber of Commerce, CFA Institute and others.
Upon passing the bill on July 25, Rep. Geoff Davis stated, “I am extremely pleased that the House voted to pass H.R. 5024 with bipartisan support. In today’s regulatory environment, our small businesses face complex and costly reporting standards, and everyday investors are tasked with translating complicated financial statements into consumable information. By requiring the SEC, FASB, and PCAOB to give annual testimony to the Financial Services Committee, H.R. 5024 will encourage efforts to reduce the complexity of financial reporting. Modernizing reporting processes, increasing transparency, and reducing the costs of financial reporting would help ease the regulatory burden on businesses and strengthen the ability of individual investors to make educated financial decisions.”
Rep. Michael Oxley, chairman of the House Financial Services Committee, said, “This legislation would help our nation’s regulators reassess the effectiveness of their regulations governing financial reporting. The SEC, FASB and PCAOB all have an important responsibility to increase the usefulness of financial disclosures to investors. This legislation would provide an important opportunity for congressional oversight to evaluate the efforts by the SEC, FASB and PCAOB.”
Having passed the House, the bill has now been referred to the Senate.
o The version of H.R. 5024 referred to the Senate on July 26 is available here.
o The press release issued by the House Financial Services Committee on July 25 is available here.
o A separate press release issued by Congressman Davis on July 25 has been posted here.
o Testimony given by FEI President and CEO Colleen Cunningham on reducing complexity of financial reporting at the March 29 hearing of the Subcommittee on Capital Markets of the House Financial Services Committee has been posted here, and a record of the hearing is available here.
Prepared July 31, 2006 by Edith Orenstein (eorenstein@FinancialExecutives.org), Director, Technical Policy Analysis, Financial Executives International (FEI). This summary does not represent FEI opinion, unless specifically noted above.