Washington poised to tackle complexity in reporting.

• Author: DiFabio, Christine
• Position: Washington insights

In May, this column reported on the recent activities in Congress focused on market competitiveness and complexity in financial reporting. It ended with the following: "... at the heart of it all is that it is time for action. There is a need to form an independent committee to study the issues, as noted by the [SEC] Chief Accountant and echoed by FEI in its recommendations ... What will provide a solution is for all parties to work together, as FEI and others have recommended. The time is now, and it appears the players are girded for battle. Whether this battle on complexity will, in turn, improve U.S. market competitiveness is something only time will tell."

FEI and its technical committees, including FEI's Committee on Corporate Reporting (CCR), have been voicing their concerns for years regarding the complex nature of the current accounting environment. In March 2005, CCR filed a comment letter with the Financial Accounting Standards Board (FASB) expressing initial concerns with working drafts of FASB's proposed revised standards on Accounting for Business Combinations and Non-Controlling Interests.

As part of its comment, CCR wrote: "Over the past ten years, the Board has issued a significant number of standards that are among the most complex we have ever encountered. These standards have caused significant difficulties in practice due to one or more of the following: scopes that are broad and hard to comprehend; complex accounting principles that require extensive supplemental interpretive guidance; and measurement principles that presume a level of valuation capabilities that do not exist uniformly across the preparer community.

"We are concerned that the cumulative consequences of these recent standards are that most accountants are struggling to understand what they are required to do and often need assistance from external subject matter experts in order to apply the requirements."

Almost two years later, FEI released recommendations to "Address Complexity in Financial Reporting." Included among FEI's four recommendations was the request that FASB and the U.S. Securities and Exchange Commission (SEC), in coordination with key financial reporting stakeholders, take steps to end the proliferation of detailed rules.

Yet, almost two and a half years after CCR's comment letter, FASB is working to finalize the standards on Business Combinations and the complexity of financial reporting has only increased, thanks to the issuance of...