Pitt Says Accounting Rules Need A Fresh Look

October 23, 2001 (PLANSPONSOR.com) - Securities and Exchange Commission (SEC) chairman Harvey Pitt wants to modernize accounting rules and move away from quarterly reports to real-time release of corporate results.

In a speech to the American Institute of Certified Public Accountants, Pitt noted that by the time information is made available to investors, it is often out of date. He plans to consider supplementing quarterly reports with more current information that could be made available online as it occurs.

Pitt also said that the regulator is considering whether companies should be shielded from legal liability for “good faith disclosure” of information on trends and other non-traditional performance measures.

Pro Forma “Phenomena”

Commenting on the recent surge of pro forma financials, Pitted noted that the trend was indicative of the need to rethink the current accounting system, saying that the trend may be partly driven by investors looking for information in a simple format and the desire of corporate leaders to focus attention on the areas they deem important.

Accounting rules may need to be overhauled as part of the effort to update corporate financial reports, and in doing so, the SEC will work closely with, and will welcome the input of, accountants and the Financial Accounting Standards Board, according to Pitt.

In his speech, Pitt highlighted four areas in which the SEC was examining possible reforms:

  • moving to a “current” disclosure approach in which companies would be required to tell the public about important events when they occur, instead of waiting for the next quarterly report
  • encouraging companies to disclose more trend information of the type sometimes included in “pro forma” statements
  • simplifying financial statements
  • providing more information about intangible assets, such as corporate brands and intellectual capital