By: Cydney Posner

In a recent speech delivered to the SEC Financial Reporting Institute Conference, SEC Chief Accountant Donald Nicolaisen hinted at what the future may hold in the world of accounting. After going through the by-now customary SOX 404 defense, Nicolaisen said that one of the SEC's key priorities is a long-term effort to reduce the complexity of financial reporting processes (a concept that's hard to argue with). He noted first that the SEC's off-balance sheet report, mandated by SOX and expected to be released shortly, combined with his prior experiences, confirmed for him the need to reduce complexity while at the same time improve both the transparency and usefulness of financial reporting for investors. He views this complexity to be the direct result of "(1) a desire to reduce volatility in the income statement, (2) the development of numerous exceptions to basic principles or (3) the application of detailed rules." Reducing complexity should not imply that accounting will be "dumbed down" or simple. These changes will take time and require appropriate due process, as well as systems changes and testing to ensure that internal controls are effective. Reducing complexity in financial reporting will require that standard-setters "consider reducing the number of exceptions permitted to basic accounting principles, especially as we move closer to objectives-based accounting. With movement in that direction, both preparers and auditors will be called upon to exercise increased professional judgment."

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