Last August, the SEC formed an advisory committee to improve financial reporting. It became known in accounting circles as the "complexity committee" (though "anti-complexity committee" would make more sense) or CIFR (acronym for "Committee on Improvements to Financial Reporting). It was established with a one-year life span; making good on that timetable, the committee issued its final report on Friday. Some of their recommendations:

♦ A short executive summary at the beginning of a company’s annual report on Form 10-K with material updates in quarterly reports on Form 10-Q.

Why? "Many individual investors may find a company’s periodic reports overly complex and detailed. A summary would describe concisely the most important themes or other significant matters with which management is primarily concerned."

Sounds suspiciously like the attempts about fifteen years ago to introduce "abbreviated financial statements" into mainstream on the grounds that full-strength financials were too difficult to use for individuals. This creates the possibility to eliminate more information down the road in the name of "simplification."

♦ The Committee supports the SEC’s long-term efforts to introduce XBRL, and its gradual phase-in.

♦ They encourage the private sector to "develop key performance indicators (KPIs), on an activity and industry basis, that would capture important aspects of a company’s activities that may not be fully reflected in its financial statements or may be nonfinancial measures."

The idea behind KPI's is that these are the indicators or data points that managers use to run the business. Why, then, don't these already appear in the Management's Discussion & Analysis? That report is supposed to let investors see the business through the eyes of management.

♦ They recommend increased investor representation on the FASB and the Financial Accounting Foundation.

That is, assuming they'll be around long enough to matter, given the SEC's drive to make IFRS the law of the land.

♦ They recommend "increasing the field work for proposed standards and formalizing post-adoption reviews of new standards, as well as periodic assessments of existing standards."

This could lead to further standard-setting paralysis. It's not like standards have been thrown at companies that require factory recalls. When there is a delay or partial transition of a standard, it's usually because the affected firms have lobbied hard to slow things down. Setting up a mechanism like this would only give them more tools to impede progress.

♦ They support "creation of a Financial Reporting Forum (FRF), on which key public and private parties would be represented. The FRF would meet regularly to discuss the current pressures on the financial reporting system and how constituents are meeting these challenges."

Isn't this awfully similar to the Financial Accounting Standards Advisory Council? Would it really add more than an additional layer of bureaucracy?

♦ The committee recommends "a move away from industry-specific guidance in authoritative literature – unless justified by strong conceptual arguments. A better approach would be to focus on the nature of the business activity itself."

♦ The committee also recommends the SEC and PCAOB adopt policy statements on how they evaluate the reasonableness of a judgment.

Time will tell how many of these recommendations will become reality. You can bet there will be a lot of activity on them between now and the end of the year, when this iteration of the SEC finishes up.