Magazine article Strategic Finance

New Accounting Model Demanded

Magazine article Strategic Finance

New Accounting Model Demanded

Article excerpt

LEADERS OF THE ACCOUNTING

community told a Senate Banking subcommittee in July that the U.S. needs a new accounting model for the New Economy. The underlying criticism was that current SEC requirements fail to encourage, much less require, companies to report the value of key intangible assets on their balance sheets. The SEC reporting system, developed before the birth of the computer, only requires that financial and physical assets be recognized. But Steve Samek, a partner at Arthur Andersen LLP, told the subcommittee that companies have valuable assets in three intangible categories: customers, employees and suppliers, and organization. "We need a different measurement and reporting system to reflect these new realities," Samek said. Robert Elliott, chairman of the American Institute of CPAs (AICPA), agreed. He noted that the AICPA Special Committee on Financial Reporting, also known as the Jenkins Committee, published a report six years ago that recommended a new corporate accounting model based on the wider-gauge notion of "busi ness reporting." He said, "It is hard to believe that the report was done six years ago and so little has been done in response." Peter Wallison, a resident fellow at the American Enterprise Institute, a Washington think tank, suggested two directions for action. Congress could pass a law similar to the Private Securities Litigation Reform Act, which set up a safe harbor for forward-looking information. Such a safe harbor could be constructed for the reporting of information on intangible assets. …

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