The SEC’s “Complexity-Killer Committee”- Part II

The Notice of Federal Advisory Committee Establishment and Notice of Meeting for the SEC’s new “complexity-killer committee” has been filed; link here (pdf file).

The composition of the committee could be finalized in the next 11 days. The first meeting will take place on August 2, and all meetings will be webcast. According to the notice, when the committee files its charter, the areas expected to be considered in the its mission are:

• the current approach to setting financial accounting and reporting standards, including (a) principles-based vs. rules-based standards, (b) the inclusion within standards of exceptions, bright lines, and safe harbors, and (c) the processes for providing timely guidance on implementation issues and emerging issues;

• the current process of regulating compliance by registrants and financial professionals with accounting and reporting standards;

• the current systems for delivering financial information to investors and accessing that information;

• other environmental factors that may drive unnecessary complexity, including the possibility of being second-guessed, the structuring of transactions to achieve an accounting result, and whether there is a hesitance of professionals to exercise judgment in the absence of detailed rules;

• whether there are current accounting and reporting standards that do not result in useful information to investors, or impose costs that outweigh the resulting benefits (the Committee could use one or two existing accounting standards as a “test case,” both to assist in formulating recommendations and to test the application of proposed recommendations by commenting on the manner in which such standards could be improved); and

• whether the growing use of international accounting standards has an impact on the relevant issues relating to the complexity of U.S. accounting standards and the usefulness of the U.S. financial reporting system.

All stuff that’s been discussed in the accounting and finance world, and if major actions are taken on any of them, it could change life as we know it for investors, preparers and auditors. Anybody in those three categories should pay close attention to the workings of this committee.