US House Calls on FASB, PCAOB and SEC to Reduce Complexity of Financials

By an unianimous vote (412-0), the House of Representatives called on the Financial Accounting Standards Board, Public Companies Accounting Oversight Board and Securities and Exchange Commission to provide annual financial testimony before the House Financial Services Committee regarding how financial reporting can become less complex. Sponsor of the "Promoting Transparency in Financial Reporting Act" Geoff Davis (R-KY) said that the legislation would provide Congressional oversight to make financial reports less complex and more principles-based. Specific issues for the three bodies to address include reassessing outdated procedures, improving the understandability and consistency of auditing and accounting literature, developing "principles-based" accounting standards, encouraging the use and acceptance of interactive data and promoting disclosures in "plain English."

So many ways to comment on this. First of all, the goals here are desirable--whether they are realistic is a separate question. The SEC is already promoting XBRL which relates to the use of interactive data. Regarding complex and outdated standards--my guess is that very few accountants support these and the FASB has been pretty active in adjusting standards. FASB tried several years ago to develop "concept-based" standards; in my view, the attempt was only partially successful. Given the level of litigation in the country, I am very wary for the impact on practitioners if "plain English" disclosures become required. More than all this, however, I wonder about how Congress, no matter how well intentioned; can call on accountants to simplify financial reporting standards when the Internal Revenue Code created by Congress can turn even the brightest of brains into mush. The phrase "pot calling kettle black" comes to mind.