Business Reporting: What Comes Next?

Abstract

Where is financial reporting heading? The 21st century holds many surprises, but the model for business reporting in the future may already have been created. A little more than two years have passed since the American Institute of CPAs special committee on financial reporting (the Jenkins committee) issued its report, Improving Business Reporting - A Customer Focus. In that short time, it has become apparent that some of the committee's recommendations are critical and deserve the attention of everyone who has an interest in business reporting. The Jenkins committee extensively interviewed investors and creditors - both important users of financial information - and heard good and bad news. The good news was that financial statements were an important component of the information users needed to make investment and credit decisions. The bad news was that financial statements apparently were not meeting some key information needs. In short, the users' message was: Don't scrap the financial reporting system, improve it. Because of what it heard, the Jenkins committee made many recommendations to enhance financial reporting or, more broadly, business reporting. Its key recommendation was for standard setters and regulators to develop a comprehensive model of business reporting to better meet users' information needs. (See the exhibit on page 61 for the proposed model.) To ensure the Jenkins committee recommendations were not left on the shelf to collect dust, the AICPA formed a financial reporting coordinating committee to follow up. For now, standard setters and regulators have addressed, or are in the process of dealing with, many of the committee's recommendations. For the future, momentum is building to act on its comprehensive model recommendation. BUILDING MOMENTUM Standard setters took their first formal action on the proposed business reporting model in February 1996, when the Financial Accounting Standards Board released an Invitation to Comment (ITC), Recommendations of the AICPA Special Committee on Financial Reporting and the Association for Investment Management and Research. (The report by the Association for Investment Management and Research [AIMR], Financial Reporting in the 1990's and Beyond, is not covered in this article.) The ITC's objectives were to (1) get respondents' views on the recommendations and (2) generate information to help the FASB decide how best to address them. The ITC emphasized the Jenkins committee's proposed comprehensive reporting model because the FASB considered it the most challenging of all of the recommendations. While some criticized the ITC as unnecessary since the Jenkins committee had already gone to great lengths to solicit users and preparers' views, others believed the invitation was a wise first step to allow standard setters to hear directly from their constituents before proceeding. The coordinating committee, sensing the ITC was not enough of a first step, thought all parties with a personal stake in business reporting should be brought together to discuss the merits of the proposed comprehensive model. In the spirit of the call made by Commissioner Steven M. H. Wallman of the Securities and Exchange Commission for the accounting profession to improve the relevance of financial reporting, the committee organized a business reporting symposium that was held in October 1996 (see JofA, Dec.96, page 14). The symposium brought together approximately 100 users and preparers of business information, CPA public practitioners, academics, standard setters and regulators from the United States and Canada to discuss the elements of the proposed comprehensive model. Panelists from the user, preparer, standard setter and regulator communities gave their views on the model and answered audience questions. In addition, many of the attendees participated in breakout groups to decide what future courses of action, if any, should be taken on the proposed model. …

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