Public policy sanity check.

• Author: Hinchman, Grace
• Position: President's page

Financial reporting, accounting standards and securities regulations have become political issues that have polarized the debate between legislative initiatives, regulatory rulemakings and financial reporting standard-setting. Today, the policy environment is defined by the backbreaking weight of complex financial reporting standards and a growing concern that the increased reporting demands will render U.S. companies anti-competitive in today's global market.

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As a result, the business community is becoming increasingly restless under this burden of compliance and implementation requirements. Now, I grant you that using the terms "political issues" and "accounting standards" in the same sentence seems like an oxymoron, but what member of Congress wouldn't want to devise a remedy for constituents dealing with overly complex financial reporting requirements? Remember that this has nothing to do with streamlining GAAP, or exempting Sarbanes-Oxley or relaxing financial reporting standards--but it does have everything to do with Members of Congress getting and keeping votes.

It should come as no surprise that Rep. Tom Feeney (R-Fla.) has reintroduced his COMPETE bill, which would exempt smaller companies from Section 404 of Sarbanes-Oxley, introduce the concept of random audits and establish an arbitrary 5 percent net profit standard for material weaknesses. This legislation has already been applauded by the U.S. Chamber of Commerce and is attracting attention in the Senate. Interestingly, the chairman of the House Financial Services Committee, Rep. Barney Frank (D-Mass.), has not leant his support to this type of legislative fix to Sarbanes-Oxley. Instead, he is on record supporting a coordinated regulatory approach with the SEC and PCAOB.

It is unfortunate that some Members of Congress have decided to take the legislative route to address some of the real issues surrounding the 404 implementation requirements. Recently, there has been a growing sense of urgency by standard-setters, regulators and legislators to address the impossible burden of accounting standards compliance, as well as the escalating costs of implementing Sarbanes-Oxley. Some, such as Rep. Feeney, have taken the legislative route, while others, such as Chairman Frank and FEI's Committee on Corporate Reporting and Smaller Public Company Task Force, maintain that regulatory improvements are the best solution to properly balance the intent of improving...