SEC Proposes Accounting Rule Changes

Enron filed for bankruptcy not long after having a run of overstated earnings.

The SEC, which put the proposal forward at an open meeting, has agreed to seek comment for two months on a more detailed proposal.

Under the proposal, company officials would be required to alert shareholders to:

• “critical” accounting decisions involving assumptions that are “highly uncertain” that would have a material effect on the firm’s finances
• instances where an alternative accounting option was used that yielded a different result

The SEC rules would not require company officials to give a dollar estimate on the effects of accounting choices, but called for qualitative discussion about the decisions.

The proposal would bring the accounting information that is presently found in the footnotes of financial documents required for public companies into the management’s discussion, where it should help investors who take the time to read it, the SEC noted.