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BUSINESS REPORTING SYMPOSIUM SENDS VERY MIXED SIGNALSOn October 7th and 8th, the AICPA, the American Accounting Association (AAA), the Association for Investment Management and Research (AIMR), the Canadian Institute of Chartered Accountants, the FASB, the Financial Executives Institute (FEI), the Institute of Management Accountants, and Robert Morris Associates sponsored a symposium on the proposed model for business reporting recommended by the AICPA Special Committee on Financial Reporting (known by the name of committee chair Edmund Jenkins) in its report issued in 1991. Also participating in the symposium were representatives of the Business Round Table and the SEC.

The proposed model, in addition to the traditional financial statements, includes nonfinancial information and data such as sales per employee and backlog and forward looking information on the risks and opportunities that the enterprise faces. (For a discussion of the recommendations see "The CPA Journal Symposium on Recommendations for Improving Business Reporting" which appeared in the January 1995 issue of The CPA Journal.) Gerry Weygandt opened the symposium in his role as host and chair of the AICPA Coordinating Committee whose task is to monitor the implementation of the Jenkins' Committee recommendations. SEC Commissioner Steven Wallman gave an address on the SEC's perspective of making changes to the financial reporting model and concluded by saying that the SEC will be looking to the private sector to move the proposals forward.

FASB member Joseph Anania reviewed the FASB's efforts, through its invitation to comment, to explore its role in developing standards for an expanded reporting model. Anania noted that only 53 comment letters had been received on the invitation, the bulk of which came from the preparer community. An overall message being sent by the comment letters was that FASB should concentrate on improving disclosure effectiveness under existing standards rather than broaden its role to include setting standards for nonfinancial and forward looking information.

The program continued with a discussion among a panel of users of financial information--investment analysts and advisors and credit grantors--followed by a panel of preparers of financial information (representatives of the FEI and IMA). The second day of the program opened with breakout sessions of representatives of all the sponsoring organizations and concluded with a wrap-up panel of standard setters and regulators reacting to the proceedings.

The participants discussed the benefits to the various players in the financial reporting cycle of expanding the traditional financial model to include the nonfinancial and forward looking information contained in the Jenkins Committee proposals.

The panel of users presented a very mixed picture. This is in keeping with the perception by many that the user community has very diverse needs and has no one spokesperson presenting a uniform point of view. Some voiced the opinion that the existing 10-K type reporting model required in annual filings with the SEC was quite adequate in providing both financial and nonfinancial information about enterprises. Others expressed the view that for many small enterprises, unless a fixed model was required, it would be difficult to get them to come forward with nonfinancial and forward looking information. There was some agreement among the users that the current mixed model--some items at historic cost, others at fair value--was generally adequate, and that they did not see any benefit from companies making their own forecasts and projections. Users like forward looking information from which they can make their own projections, which they feel are more realistic than those made by companies themselves. One user said that the audited 10-K financial information, although 90 or so days old is still an important baseline to begin evaluating a company. It is not obsolete but is an important pause for reflection each year in the financial reporting journey.

Preparers Speak

The preparer community panel basically spoke with one voice and with one perspective. The view was that the basic 10-K model was adequate, the marketplace is already getting a great deal of nonfinancial and forward looking information through press releases, and that auditor involvement with such information would inhibit rather than promote and improve the nature and quality of that information. The preparer panel did a very professional job of promoting the status quo. The result was a very chilling effect on the symposium program.

The summary of the breakout groups, very ably presented by Paul Kolton, former chairman of the American Stock Exchange, brought some warmth to the proceeding. There was a general consensus that the nonfinancial and forward looking information is essential to the proper functioning of capital markets. The notion of establishing a group of representatives from the sponsoring organizations of the symposium to develop a comprehensive conceptual model or framework for this other information was appealing to many in the breakout groups. Many would want the nonfinancial and forward-looking information to be strictly market driven and flexible to meet the needs of particular users. Standards for disclosure should not be instituted until properly field tested.

The wrap-up panel, including questions from the audience, portrayed a sense of uncertainty and confusion. While all agree the nonfinancial and forward-looking information is essential, there was no sense of commitment or interest on any one group of doing anything concrete to move the program forward. FASB will continue whatever it can, but that appears to be somewhat limited at this time. The SEC says it is a private sector matter. The preparers and users seem to be content with the existing 10-K model with auditor involvement at existing levels. It would appear that until there is a loud and clear call from the marketplace for a new financial reporting model, the movement to implement the recommendations of the Jenkins' committee will be slow at best. It will be difficult to sell this new model to users and preparers that show little interest in it. *

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