The SEC wants to “get to the heart of the issues” surrounding the measurement of uncertainty, said its chief accountant, Jim Kroeker,in his remarks to the SEC's November 8 Roundtable on Measurement Uncertainty, the first in the SEC's Financial Reporting Series. “Getting back to what . . . the accountants used to call the tradeoff between relevance and reliability,” Kroeker told investors, preparers, analysts, auditors and other roundtable attendees, “something may be more reliable if I put it on the books at cost, but is that more relevant?” Responses, as reported by the summary FEI blog, included:
- "I think investors look for certainty in the accounts, and it’s all a question about handling your uncertainty,” said Stephen Penman (Columbia Univ.) “When you accountants do your work, don’t mix speculation with what you know, because I need an anchor in the financial statements to build on, [so] leave the speculation to me."
- "Putting on a façade of mathematical precision, whether it’s probability-weighted estimates or confidence intervals or anything like that—I am reminded of . . . the founder of fuzzy logic [and] the principle of incompatibility,” said Pinto Suri (Flaherty & Crumrine): “‘As a system’s complexity increases, meaningful statements lose precision and precise statements lose meaning.’. . . Because as we start putting on all kinds of mathematical constructs on things that are inherently uncertain, you will just open up to more lack of confidence down the road.”
- “Should disclosure be a substitute for recognition?” asked Gary Kaburek (Xerox Corp.). That is, “maybe something should be perhaps in the footnotes going forward [rather] than actually recognized and measured on the face of the financial statements, maybe that’s something long-term [to consider in standard-setting].”
- "Absolutely, I couldn’t agree with you more,” answered Suri. “One of the things we need is truth in labeling—fair value is neither fair, nor value; we need to get that on the table, get comfortable with that, the Earth’s not going to shatter. These items should be moved into disclosure, these are traditional add-ons that are useful to assess what management is doing.”
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