Financial Reporting:
Purpose of Accounting
Importance of Financial Statements Relative to Disclosures
Position: Comprehensive disclosures supplement, but do not replace, the information displayed in the financial statements.
Rationale: The financial statements bring all elements of a company’s operations and financial condition together into one coherent statement that investors rely on for their investment decisions. Supplemental disclosures are intended to add depth and understanding to the financial statements.
Where stated: CAC Letter
Purpose of Accounting
Position: Accounting standards must faithfully represent the economic substance of business transactions and provide information in a neutral manner to all financial market participants.
Rationale: Financial markets participants require accounting standards that report the value of transactions regardless of the current used to effect a transaction.
Where stated: US Senate Goodwill Accounting
Financial Reporting Requirements
Position: Financial information is needed that is:
- Comparable from firm to firm
- Relevant to investment and financing decisions
- A reliable and faithful depiction of economic reality
- Neutral, favoring neither supplier nor use of capital, neither buyer nor seller of securities
Rationale: Investors use financial information to assess the economic performance and financial condition of business enterprises. Information meeting these criteria is needed to ensure that investors allocate capital to those uses that create the greatest returns commensurate with the risks.
Where stated: US Senate Goodwill Accounting
Independent Accounting Standards Setters
Position: Accounting standards setters must be independent of those persons and organizations who seek financial reports that serve their parochial interests.
Rationale: Independence will make it more likely that accounting standards will serve the needs of those who read and review the financial reports, not those that are responsible for creating them. Those responsible for creating financial reports may attempt to create accounting rules that help them obfuscate the real performance and condition of the company at the expense of outside shareowners. Accounting standards should not be promulgated to serve the special interests of select groups of constituents or certain industry but the interests of the capital markets and their participants.
Where stated: US Senate Goodwill Accounting
Accounting Should Serve Investors’ Interests
Position: The interests of the capital markets and those who invest in them are served when business combinations are formed for their economic benefits, not their accounting outcomes.
Rationale: Information is the lifeblood of financial markets, and accounting standards should strive to satisfy investors’ needs for prompt, adequate, and transparent financial information.
Where stated: US Senate Goodwill Accounting
Support for the Financial Accounting Standards Board
Position: We support the Financial Accounting Standards Board as an institution.
Rationale: There is no alternative arrangement that would come close to achieving the integrity of the FASB and its ability, by promulgating accounting standards, to compel the propagation of trust through financial reports.
Where stated: US Senate Goodwill Accounting