The Financial Accounting Standards Board (FASB) last week responded to the Security and Exchange Commission’s (SEC’s) Off Balance Sheet Report by identifying forces causing complexity and impeding financial transparency, as well as providing an update on the FASB’s activities intended to address complex accounting standards. The FASB also reaffirmed its commitment to improving the transparency and usefulness of financial reporting.
“The FASB remains fiercely committed to protecting the interests of investors and the capital markets by developing accounting standards that, if faithfully followed, provided relevant, reliable and useful financial information,” FASB Chariman Robert Herz said in a prepared statement. “Along these lines, we remain concerned about the root causes and the effects that complexity continues to have on our financial reporting system and believe that concerted and coordinated action by the SEC, the FASB, and the PCAOB, together with other parties in the financial reporting system, is critical.”
The FASB has named several areas as key for overcoming the challenges facing the financial reporting system including: accounting for leases; accounting for pensions and other post-employment benefits; consolidation policies; accounting for financial instruments; accounting for intangible assets; and conceptual and disclosure frameworks. Several initiatives have been undertaken to help improve understandability, consistency, and overall usability of existing accounting literature, through codification and by attempting to limit the proliferation of pronouncements from multiple sources and by developing new standards using a principles-based or objectives-oriented approach.
The FASB Response to SEC Study on Arrangements with Off-Balance Sheet Implications, Special Purpose Entities, and Transparency of Filings by Issuers provides comments on issues and recommendations included in the Report and Recommendations Pursuant to Section 401(c) of the Sarbanes-Oxley Act of 2002 on Arrangements with Off-Balance Sheet Implications, Special Purpose Entities, and Transparency of Filings by Issuers submitted in June 2005 by the staff of the SEC to the President of the United States, the Senate Committee on Banking, Housing and Urban Affairs and the Committee of Financial Services of the U.S. House of Representatives.